New Jersey to Allow Default Service Supplier to Pass-Through New PJM Capacity Costs to Protect "Integrity" of BGS Auction

The New Jersey BPU will allow Basic Generation Service (BGS) suppliers to pass-through incremental costs associated with PJM's enhanced capacity proposal.

Stakeholders are currently debating at PJM various proposals for enhanced capacity, with new costs assigned to load serving entities. The BPU noted that it does not appear likely that FERC will render a final resolution on the enhanced capacity issue before the BGS auction is held in February 2015.

"Due to the uncertainty and the possibility that the requirements may be applied retroactively to existing contracts, bidders in the upcoming BGS auction would have either placed large risk premiums on their bids or refrained from participation in the auction entirely," the BPU said

Accordingly, the BPU adopted, "a mechanism for the pass through by PJM of unanticipated costs approved by FERC," the Board said in a news release. Though worded imperfectly, we take this to mean BGS suppliers will be able to pass-through enhanced capacity compliance costs.

"By removing the potential risks of any proposal that is ultimately approved by FERC, the BGS auction bidding process is expected to be competitive based upon the number of bidders and the number of offerings for each block of power auctioned, which will result in competitive prices for ratepayers," the BPU said.

"The Board's action today protects the integrity and competitiveness of the upcoming BGS auction," said N.J. Board of Public Utilities President Richard S. Mroz. "Faced with the uncertainty of federal action on a draft PJM proposal, there was good reason to believe that electric suppliers would either not participate in the upcoming auction or would bid much higher prices to mitigate unknown risks."