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<title>New Jersey Restructuring Bill Passes Both Houses, Providing Limited Exit Fee
Exemption, Renewables Requirement and Securitization</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">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.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<td width="69%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p> </p>
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<p><b><u>February 1999</u><br>
<font face="Arial"><big><big><big>New Jersey Resturcturing Bill Passes Both
Houses, Providing Limited Exit Fee Exemption, Renewables Requirement And
Securitization<br>
</big></big></big></font></b><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
02/99</em>)</font></p>
<p><font face="Arial">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. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
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<p align="left"><font face="Arial">
<small>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:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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