Dive Brief:

• New Jersey lawmakers on Thursday passed major pieces of energy legislation that would establish a 50% renewable energy standard by 2030, provide support for uneconomic nuclear plants and set new energy storage targets for the state. 
• Gov. Phil Murphy (D) is expected to sign the bills, which would set a 2 GW storage target by 2030 and establish a retail surcharge to support the state's nuclear fleet. Analysts warn, however, that he could issue a conditional veto on parts of legislation, which would require a two-thirds vote in both chambers to override. 
• The bills' passage after the PJM Interconnection, the regional electricity market that serves New Jersey, submitted two capacity market reform proposals to federal regulators that seek to mitigate the impact of nuclear subsidies like those in the bill. The Federal Energy Regulatory Commission is currently reviewing the proposals. 

Dive Insight:

If Gov. Murphy signs the New Jersey legislation it would become the third state to enact cost supports for nuclear generators at risk of retirement. New York and Illinois also have Zero Emission Credit (ZEC) programs that aim to compensate the plants for their carbon-free power. 

The existing ZEC programs are the subject of federal court challenges, with gas generators in both states arguing they infringe on FERC's authority to regulate wholesale power market prices. Analysts say a similar challenge is likely to the New Jersey bill if it is signed, but the measure contains one key difference to the existing ZEC programs.

"New Jersey’s proposal does not mention wholesale market prices at all," ClearView Energy Partners wrote in a note its clients. "Instead, the bill provides the New Jersey BPU authority to reduce the $0.004/kWh retail charge in subsequent eligibility periods if the board determines that a reduced charge will 'nonetheless be sufficient to achieve the State’s air quality and other environmental objectives by preventing the retirement of the nuclear power plants.'"

That change could give the New Jersey program firmer legal footing than the existing ZEC programs, which have already been viewed favorably by federal district courts in recent decisions. The impact on wholesale market prices, however, is less clear. 

Earlier this month, PJM filed two competing proposals to reform its capacity market at FERC — a two-part capacity auction and an extension to minimum offer price rules (MOPR). Both plans seek to diminish the impact of electricity subsidies — like ZEC programs — on wholesale market prices, which PJM worries are being artificially depressed by the policies. 

Those proposals explicitly mentioned ZEC programs as policies that would be affected by the capacity reform proposals. PJM has asked FERC to choose one of the policy options or recommend no action by June 29. 

Multiple media outlets report that Gov. Murphy is likely to sign the bill, though ClearView warns he could issue a conditional veto. Business and consumer groups in the state oppose the bill, the analysts note, "which could encourage the governor to seek revisions that lower the program’s total cost, potentially be reducing the $0.004/kWh retail charged imposed on customers to pay for the program."

If Murphy does sign the nuclear bill, legal challenges are expected immediately. In a Thursday statement, the Electric Power Supply Association, a trade group for generators, said the bill would raise prices for New Jersey consumers and pressed FERC to act.

“Should it become law, a bailout of New Jersey’s profitable nuclear power plants would undermine competition in the broader PJM markets and thus unfairly harm competitors who depend on those markets," EPSA CEO John Shelk said. "A New Jersey nuclear bailout makes it more urgent than ever for the Federal Energy Regulatory Commission to swiftly implement effective countermeasures to protect the integrity of PJM’s energy and capacity markets."