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About The Author:

Robert A. Olson is a partner in the law firm of Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law, public utility law and related commercial transactions.

He can be reached at:

Brown, Olson & Gould, PC
2 Delta Drive
Suite 301
Concord, NH 03301
(603) 225-9716









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STATELINE by Robert Olson



February 1999
New Jersey Resturcturing Bill Passes Both Houses, Providing Limited Exit Fee Exemption, Renewables Requirement And Securitization
by Robert Olson  --   Brown, Olson and Wilson, P.C.
(originally published by PMA OnLine Magazine: 02/99)

On January 28, 1999, the New Jersey Assembly and Senate passed the "Electric Discount and Energy Competition Act" (Act). Under the Act, retail access begins on August 1, 1999, and will provide customers with at least a five percent rate reduction initially, with a further phased-in reduction reaching at least ten percent. Inside-the-fence generators installed after retail competition will be required to pay exit fees only if the impact on the utility’s load meets a given threshold, but existing generators selling power inside-the-fence will be exempt from these charges. The utilities and competitive suppliers will be required to meet a renewables quota. A charge will be imposed on utility customers to cover social programs, demand-side management (DSM) programs, and other costs. DSM programs include funds for the use of renewable energy. Divestiture of utility generation assets is not mandated, although any divestiture will be overseen by the Board of Public Utilities (BPU). The Act does not require 100% recovery of stranded costs, but leaves stranded cost issues to the BPU, and permits securitization of stranded costs.

The Act permits exit fees to be charged to inside-the-fence generation facilities when the total generation from these facilities reaches a certain threshold. That threshold is reached when the kilowatt hours distributed from a utility have been displaced in an amount equal to 92.5 percent of the kilowatt hours distributed by the utility in 1999. Under the Act, the exit fees are charges other suppliers must levy on power consumption. These charges cover the DSM programs, social programs, market transition costs, stranded costs, and other costs. Facilities installed prior to the effective date of the Act are exempt from these exit fees, and expansion of these facilities for the same on-site customer does not affect the exemption. Planned inside-the-fence facilities for which substantial financial and contractual commitments have been made are within the scope of the exemption. Inside-the-fence generating facilities selling power to off-site customers will be required to pay the exit fees.

Competitive suppliers will be required to meet renewable requirements for electricity sold in New Jersey. The Act divides renewables into two classes: Class I consists of energy produced from solar technologies, photovoltaic technologies, wind energy, fuel cells, geothermal technologies, wave or tidal action, and methane gas from landfills or a sustainable biomass facility. Class II consists of solid waste incinerators and hydropower facilities located in a retail competition area which meet certain environmental criteria. 2 _% of power sold in New Jersey must include Class I and II energy. Beginning January 1, 2001, 0.5% must be from Class I energy. By January 1, 2006, the BPU must require that 1% be from Class I energy, and the percentage is to increase by a half percentage each year until the year 2012, when the Class I energy requirement will reach 4%. Suppliers can satisfy this requirement by participating in a trading program. The Act also requires suppliers to provide customers with emissions data and the fuel mix used by the provider. The BPU is permitted to adopt emissions portfolio standards if needed to comply with federal clean air standards, and must adopt emissions standards if two states in the Pennsylvania-New Jersey-Maryland (PJM) power pool making up forty percent of PJM consumption adopt such standards. Suppliers will also be required to offer net metering for wind or solar photovoltaic systems of residential and small commercial customers at non-discriminatory rates. In the event the customer supplies more energy than the supplier provides, the customer receives payment based on the wholesale power rate. The BPU may authorize the supplier to discontinue net metering if the financial impact meets a certain level.

Over the next four years, money collected for DSM programs, in an amount no less than 50% of the 1999 DSM charges, will be used to fund energy efficiency and Class I renewable energy programs. One-quarter of this amount is to fund Class I renewable energy projects in New Jersey. The BPU, in consultation with the Department of Environmental Protection, will determine the technologies eligible and programs to be funded. In the fifth through eighth years, the funding for energy efficiency and Class I renewable energy programs will be no less than 50% of currently collected DSM funds, up to $140 million.

The Act authorizes the BPU to determine whether a utility need divest itself of all or a portion of its generating assets. The BPU need not require a sale of the assets, but may instead require the utility to functionally separate its competitive generation service from its non-competitive business. The BPU may also require divestiture to an unaffiliated company if necessary for market concentration concerns. Prior to any sales, the BPU must approve the sale and will monitor the bid process under established standards for the conduct of the sale.

Utilities may recover stranded costs through a market transition charge. This charge will be collectible over an eight year period, will be non-bypassable, and payable by all customers except off-grid customers exempted from exit fees. The charge will include costs related to power purchase contracts with other utilities and with non-utility generators (NUGs), including buydowns and buyouts of such contracts. Eligible costs are those included in the utility’s most recent rate case prior to April 30, 1977, unless the BPU permits additional costs. The utility must submit a stranded cost filing to the BPU, which will approve, reject, or modify the filing. The market transition charge cannot prevent the rate reductions required under the Act. The eight year recovery period may be extended to accomplish the rate reduction, to recover non-mitigatable stranded costs associated with long-term NUG contracts, and to recover other costs. The BPU may approve NUG contract renegotiation if it substantially reduces stranded costs. Eligible stranded costs may be reduced further by securitization.

The Governor is expected to sign the legislation into law. The Act also deregulates the gas industry, providing full retail access by December 31, 1999.

Robert A. Olson is a partner in the law firm of Brown, Olson & Gould P.C. which maintains a nationwide practice in energy law, public utility law and related commercial transactions. He can be reached at:

Brown, Olson & Gould, PC
2 Delta Drive, Suite 301
Concord, NH 03301 | (603) 225-9716

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