SENATE BUDGET AND APPROPRIATIONS COMMITTEE
STATEMENT TO
SENATE COMMITTEE SUBSTITUTE FOR
SENATE, No. 877
STATE OF NEW JERSEY
DATED: FEBRUARY 22, 2018
The Senate Budget and Appropriations Committee reports favorably a Senate committee substitute for Senate Bill No. 877.
This committee substitute directs the Board of Public Utilities (board) to establish a Zero Emission Certificate (ZEC) program. Under the committee substitute, a ZEC is a certificate, issued by the board or its designee, representing the fuel diversity, air quality, and environmental attributes of one megawatt-hour of electricity generated by an eligible nuclear power plant selected by the board to participate in the ZEC program.
To participate in the ZEC program, a nuclear power plant is required to: (1) be licensed to operate by the United States Nuclear Regulatory Commission by the date of enactment of this committee substitute and through 2030 or later; (2) demonstrate to the satisfaction of the board that it makes a significant and material contribution to the air quality in the State by minimizing emissions that result from electricity consumed in New Jersey; (3) provide financial information to the board demonstrating that the plant will cease operations unless the nuclear power plant experiences a material financial change; (4) certify annually to the board that the nuclear power plant does not receive any direct or indirect payment or credit under a law of the State, other state or federal law, or regional compact, that would eliminate the need for the nuclear power plant to retire prematurely, despite its reasonable best efforts to obtain any such payment or credit; and (5) submit an application fee to the board in an amount to be determined by the board, but which is not to exceed $250,000, to be used to defray the costs incurred by the board to administer the ZEC program.
The board is to determine the price of a ZEC each energy year under the formula provided in the committee substitute. Within 90 days after the conclusion of an energy year, each electric public utility (utility) in the State is required to pay each nuclear power plant that received ZECs for that prior energy year for the total number of ZECs received by the nuclear power plant multiplied by the percentage of electricity the utility distributed in the State as compared to other utilities in the State.
The board is to order the full recovery of all costs associated with the utility’s procurement of ZECs through a non-bypassable, irrevocable charge imposed on the customers of the utility in the amount of $0.004 per kilowatt-hour. This charge may be reduced by the board if certain conditions are met as specified in the committee substitute. Excess monies collected by utilities through the charge are to be refunded to their customers.
A nuclear power plant selected by the board to participate in the program is to initially receive ZECs through the end of the first energy year in which the plant was selected, plus an additional three energy years thereafter, and then is subject to review by the board triennially for renewed eligibility for additional, three energy year periods.
A nuclear power plant selected by the board to participate in the program may suspend or cease operations under certain circumstances, including circumstances in which events prevent the selected nuclear power plant from continuing operations despite the selected nuclear power plant’s reasonable efforts to continue operations. If a selected nuclear power plant ceases operations during an eligibility period for any reason other than those specified in the committee substitute, the selected nuclear power plant is to pay a charge to the utilities that purchased ZECs from the selected nuclear power plant in an amount equal to the compensation received for the sale of ZECs since the board’s last determination of the selected nuclear power plant’s eligibility to receive ZECs. A selected nuclear power plant would not be authorized to lay off personnel except for employee misconduct or underperformance issues. The committee substitute requires the board to conduct a study to evaluate the program after 10 years.
The committee substitute also makes modifications to the State’s solar renewable energy portfolio standards. It further requires the board to complete a study that evaluates how to modify or replace the current program. Under current law, electric power suppliers and basic generation service providers must provide a certain percentage of their electricity from solar electric power generators. The committee substitute accelerates the schedule to require electric power suppliers and basic generation service providers to provide a greater percentage of solar energy each year, culminating in 5.1 percent by energy year 2021 and then gradually reducing the schedule thereafter until energy year 2033. The committee substitute also reduces the solar alternative compliance payments (SACP) beginning in energy year 2019 until energy year 2033. For energy year 2019, the SACP is reduced to $268 and is gradually reduced by $10 per year until 2033.
The board would be required to evaluate how to modify or replace the SREC program in order to encourage the continued efficient and orderly development of solar renewable generating sources. The study would evaluate how to develop a program that would reduce the costs of achieving the State's solar energy goals, provide an orderly transition from the current SREC program to a new program, develop targets for grid-connected and distribution systems, establish and update market-based maximum incentive payment caps, encourage and facilitate market-based cost recovery through long-term contracts and energy market sales.
The committee substitute requires that the board, for any new applications submitted after the committee substitute’s date of enactment into law, require for any project over 25 kilowatts a notice escrow be paid that would be returned upon denial of the application, or upon commencement of commercial operation. The escrow would be forfeited to the State if the facility does not commence commercial operation within two years following the date of designation by the board. The committee substitute would also change the SREC term to 10 years from 15 years for any project where the application is filed after the date of enactment of the committee substitute. The committee substitute would add solar alternative compliance payment amounts for energy years 2029 to 2033. The committee substitute would provide that the board, for energy years 2019 and 2020, may approve up to a total of 100 megawatts of auctioned capacity of solar electric power generation facility projects.
Further, the committee substitute requires the board to establish an energy efficiency program for electric public utilities and gas public utilities to reduce electricity usage, natural gas usage, and peak demand.
Under the committee substitute, the board is to adopt an energy efficiency program that requires each utility to implement energy efficiency measures and peak demand measures to reduce electricity usage or natural gas usage in its service territory, as appropriate, by two percent of the average energy usage in the prior three years within five years of implementation of the program. Each utility is to establish energy efficiency programs and peak demand programs to be approved by the board and made available to the public to implement the energy efficiency programs. Each utility would also be required to file with the board implementation and reporting plans as well as evaluation, measurement, and verification strategies to determine the energy reductions and peak demand reductions achieved by the energy efficiency measures and peak demand reduction measures approved by the board.
Under the committee substitute, the board is required to adopt quantitative performance indicators pursuant to the "Administrative Procedure Act" for each utility which would establish reasonably achievable targets for energy reductions and peak demand reductions and that take into account the utility's energy efficiency measures and other non-utility energy efficiency measures including measures to support the development and implementation of building code changes, appliance efficiency standards, the Clean Energy program, and any other State-sponsored energy efficiency or peak reduction programs. In establishing quantitative performance indicators the board is directed to use a methodology that incorporates weather, economic factors, customer growth, and outage-adjusted efficiency factors to ensure that the public utility's incentives or penalties, as determined under the committee substitute, are based upon performance and take into account the growth in the use of electric vehicles, microgrids, and distributed energy resources. Each quantitative performance indicator would be reviewed by the board every three years.
The committee substitute also requires each electric public utility and gas public utility to file an annual petition with the board to demonstrate compliance with the energy efficiency and peak demand reduction programs, compliance with the targets established pursuant to the quantitative performance indicators, and for cost recovery of the programs. In addition to a base rate case filing, each utility may file annually with the board a petition to recover on a full and current basis through a surcharge all reasonable and prudent costs incurred as a result of energy efficiency measures and peak demand reduction measures required pursuant to the committee substitute, including, but not limited to, recovery of and on capital investment and the revenue impact of sales losses resulting from the implementation of energy efficiency and peak demand reduction schedules. If a utility achieves the performance targets established in the quantitative performance indicators, the utility would receive an incentive as determined by the board, but failure to achieve the performance targets would result in a penalty as determined by the board. The penalty would scale in a linear fashion to a maximum that reflects the extent of the failure to achieve the required savings.
The committee substitute also requires the board to establish a stakeholder process to evaluate the economically achievable energy reductions and peak demand reduction requirements, rate adjustments, quantitative performance indicators, and the process for evaluating, measuring, and verifying energy reductions and peak demand reductions by the utilities. As part of the stakeholder process, the board is required to establish an independent advisory group to study the evaluation, measurement, and verification process for energy efficiency programs and peak demand reduction programs, which would include representatives from the public utilities, the Division of Rate Counsel, and environmental and consumer organizations, to provide recommendations to the board for improvements to the programs. The utilities are required to conduct a demographic analysis as part of the stakeholder process to determine if all customers are able to participate fully in implementing energy efficiency measures and peak demand reduction programs, to identify market barriers that prevent such participation, and to make recommendations for measures to overcome such barriers. Each utility would be entitled to recover the costs associated with the analysis.
The committee substitute requires the board to direct the electric public utilities to undertake a study to determine the optimal voltage for use in their distribution systems. Further, the committee substitute requires the board to require the owner or operator of each commercial building over 25,000 square feet in the State to benchmark energy and water use for the prior calendar year using the United States Environmental Protection Agency’s Portfolio Manager tool.
This committee substitute also requires the board, in consultation with PJM, the independent system operator, to conduct an energy storage analysis.
In conducting the analysis required by the committee substitute, the board would:
(1) consider how implementation of renewable electric energy storage systems may benefit ratepayers by providing emergency back-up power for essential services, offsetting peak loads, and stabilizing the electric distribution system;
(2) consider whether implementation of renewable electric energy storage systems would promote the use of electric vehicles in the State and the potential impact on renewable energy production in the State;
(3) study the types of energy storage technologies currently being implemented in the State;
(4) consider the benefits and costs to ratepayers, local governments, and electric public utilities associated with the development and implementation of additional energy storage technologies;
(5) determine the optimal amount of energy storage to be added in the State over the next five years in order to provide the maximum benefit to ratepayers;
(6) determine optimum points of entry into the electric distribution system for distributed energy resources; and
(7) calculate the cost to the State’s ratepayers of adding the optimal amount of energy storage.
The committee substitute requires the board to prepare and submit, within one year after enactment of the committee substitute into law, a written report to the Governor and to the Legislature concerning energy storage needs and opportunities in the State. The report would: (1) summarize the energy storage analysis; (2) discuss and quantify the potential benefits and costs associated with increasing opportunities for energy storage and distributed energy resources in the State; and (3) recommend ways to increase opportunities for energy storage and distributed energy resources opportunities in the State, including any recommendations for financial incentives to aid in the development and implementation of these technologies by public and private entities in the State. Six months after completion of the report, the board would be required to initiate a proceeding to establish a process and mechanism for achieving the goal of 600 megawatts of energy storage by 2021 and 2,000 megawatts of energy storage by 2030.
This committee substitute also establishes the “Community Solar Energy Pilot Program” to permit customers of an electric public utility to participate in a solar energy project that is remotely located from their properties, but is within their utility service territory, to allow for a credit to the customer's utility committee substitute equal to the electricity generated that is attributed to the customer's participation in the solar project. The program would permit a customer of an electric public utility to participate in a solar energy project with a capacity of five megawatts or less. The board would be required to adopt regulations that establish the parameters for the program. No later than 36 months after the adoption of regulations establishing the pilot program, the board would be required to convert the pilot program to a permanent program.
The committee substitute would also require the board to establish an application and approval process to certify public entities to act as a host customer for remote net metering generating capacity. A public entity certified to act as a host customer may allocate credits to other public entities within the same utility service territory. A public entity certified to act as a host customer may host a solar energy project with a capacity up to the total average usage of the utility accounts for the host public entity customer.
The committee substitute also provides a tax credit for qualified wind energy projects in an eligible wind energy zone. It also requires the Department of Labor and Workforce Development to establish job training programs for those who work in manufacturing and servicing of offshore wind power equipment through Workforce Investment Boards, county colleges, and other appropriate institutions and to develop training curricula in consultation with the equipment manufacturers.
Finally, the committee substitute includes a severability section to assure that if any provision of the committee substitute or its application to any person or circumstance is held invalid or unconstitutional, that judgment or decision would not affect other provisions or applications which can be given effect without the invalid or unconstitutional provision or application.
FISCAL IMPACT:
The Office of Legislative Services (OLS) is unable to determine the magnitude of the impact of this substitute on electric public utility ratepayers in this State, which includes State and local government entities. The OLS is unaware of a data source at this time which provides the total amount of electricity distributed to State and local government entities; thus, the OLS is unable to calculate the total cost that will be borne by State and local governments as a result of multiple provisions in the substitute which will increase the retail price paid for electricity.
The OLS notes that the increase in the retail price paid for electricity will result in additional sales and use tax revenues. The OLS is unable to provide an estimate in regard to the amount of potential sales and use tax revenue that will be realized since the OLS does not have the necessary data to quantify all provisions of the substitute.
The OLS further notes that certain provisions in the substitute will likely result in higher administrative costs for various executive departments and agencies. The number of staff required to be hired to implement the provisions of the substitute, the use of outside consultants to provide assistance with implementing the provisions of the substitute, and the associated expenditures that the various executive departments and agencies will incur as a result of the substitute, will be determined by future decisions of executive branch officials.
The net fiscal impact associated with extending the tax credit program for qualified wind energy projects in eligible wind energy zones is also indeterminate. The tax credit program is capped at $100 million; however, the New Jersey Economic Development Authority may increase the cap under certain circumstances. The OLS is unaware of any credits that were previously approved under the program prior to the existing statutory deadline and is uncertain if any portion of the $100 million cap was utilized.
The inability of the OLS to quantify the substitute’s fiscal net impact is the result of insufficient information regarding: the number and attributes of projects that are likely to be awarded tax credits as a result of the substitute; and the potential State tax revenue that may be replaced by tax credit awards.
In general, the State fiscal net impact is calculated by adding the direct revenue loss from awarding up to $100 million in tax credits to qualifying projects in eligible wind energy zones and their indeterminate opportunity costs and subtracting from that sum the indeterminate indirect revenue gain that will accrue from additional economic activity the additional tax credit awards will catalyze.