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Chris Christie’s Energy Policy

It’s not so conservative.

Aug 29, 2011, Vol. 16, No. 46 • By MICHAEL WARREN
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There’s no question that Chris Christie, the tough-talking hero of the right, is more conservative than the last Republican elected governor of New Jersey, pro-choice environmentalist Christine Todd Whitman. So fans of the union-busting, liberal-taunting Christie might wonder why the current governor wants to roll back one of Whitman’s few conservative policy achievements.

Power Plant Photo

Under Whitman’s watch in the mid to late 1990s, New Jersey, along with George W. Bush’s Texas, led the nation in deregulating the electricity industry. When Whitman sought to deregulate generation, the idea was to shift the costs of investment from rate-payers to the developers of new power plants. Instead of a monopolized market where rate-payers are price takers, the Whitman reforms meant power providers would take their prices from a more competitive market, spread across several states, with consumers in charge. By the time she left Trenton to serve as Bush’s EPA director in 2001, Whitman had fundamentally transformed the state’s electricity market.

A new electricity subsidy program with Christie’s support could undo those reforms. In his energy plan, published in June, Christie makes his first priority clear: “Drive down the cost of energy for all customers.” New Jersey consistently has one of the highest average electricity rates in the country. For instance, in 2010, the average rate across all sectors in New Jersey, 14.84 cents per kilowatt-hour, was higher than in all but four other states.

The Christie administration argues that expanding in-state generation​—​that is, constructing or replacing power plants​—​is the solution to high electricity costs. Lee Solomon, the president of the state’s Board of Public Utilities (BPU) and a Christie appointee, maintains that the regional market’s pricing model is flawed and that New Jersey rate-payers end up paying more for “capacity” and “congestion” charges—incurred when power demand causes electricity to be transmitted from plants in states as far away as Illinois. “We can either just suck it up, grin and bear it, pay the prices, live with these energy conditions as they may be, or we can try to change it,” Solomon said at an industry conference in April. “In government we don’t have the luxury of watching markets play out.”

So New Jersey’s government acted. Last January Christie signed into law the Long-Term Capacity Pilot Program (LCAPP). Administered by the BPU, the program awarded contracts to build three new power plants, subsidized by the state government. By introducing more suppliers, the argument goes, electricity rates will go down.

But some industry experts say that subsidizing new generation will actually hurt competitiveness. “I’m not sure I’ve seen a piece of energy legislation more anti-competitive- markets,” says Glen Thomas, the president of GT Power Group, an energy consulting firm. “It’s just market manipulation from the other side.”

So what’s wrong with a little market manipulation? Plenty. Under the provisions of the pilot program, New Jersey will permit those subsidized providers to enter the regional market. After all, what’s the cost of entry when you’re backed by the government? It’s as clear a case as any of politicians picking winners and losers.

“A market can’t work,” says Joe Kelliher, the former chairman of the Federal Energy Regulatory Commission (FERC), “if consumers can choose between” market suppliers and government-subsidized ones. Rates may drop for consumers in the short run, but the decrease will be artificial and won’t last forever. Unsubsidized generators will have to raise rates to cover their costs. That could distort markets beyond New Jersey’s.

“We’re deeply concerned with the retreat that’s been taking place in New Jersey,” says Rob Powelson, the chairman of Pennsylvania’s Public Utility Commission. Powelson says Pennsylvania sets the gold standard with its restructured electricity markets, ironically modeled after the Whitman reforms across the Delaware River in New Jersey. Once Pennsylvania opened up its generation market, Powelson says, providers from as far away as Florida flocked north to compete. But New Jersey’s market intervention could easily affect its neighbors. A FERC ruling in April recognized this, and the pilot program has been put on hold while the BPU pursues other options for implementing it.

The relatively high rates show New Jersey does have difficult energy challenges. But the answer doesn’t lie with more domestic generation capacity. The small, densely populated state has insufficient space for enough efficient plants and an influential environmental lobby to boot. 

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