A group of municipalities and other governmental entities in the state had argued that funding $245.6 million in QF contract payments through the adjustment clause rates would cost customers $132.6 million above current market costs for the QF power, as well as over $11 million to fund 150 megawatts of "excess capacity" over the next two years. The group said the rate disallowance would enhance the utility's ability to retain customers currently at risk in an increasingly competitive market and that ratepayers should not be held responsible for drastic forecasting mistakes and associated business decisions by utility management.
Citing a recent decision by the U.S. Court of Appeals for the Third Circuit in Freehold Cogeneration Associates v. New Jersey Board of Regulatory Commissioners, 44 F.3d 1178 (3rd Cir.1995), the BPU said it was preempted under federal law from reconsidering its prior approval of the QF contract rates, even though market prices and avoided-cost projections had fallen significantly since the late 1980s. It said the Federal Energy Regulatory Commission had also ruled that it would not disturb existing QF purchased-power contracts containing rates based on inaccurate estimates of avoided costs unless the contracts were challenged when signed. Finally, the BPU ruled that an excess capacity adjustment was "particularly inappropriate" given the projected short duration of the excess capacity situation alleged by the municipalities. It said that the excess situation was well within the bounds and precision of the utility planning process. Re Atlantic City Electric Co., BPU Docket No. ER95040166, OAL Docket No. PUC4558-95, Apr. 24, 1996 (N.J.B.P.U.).
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