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BPU Maintains Traditional Auction System for State Electric Utilities

The Board of Public Utilities stays with a system that helps prevent big spikes in electric bills, especially when natural gas prices soar.

Even though more residents are shopping around for the electricity they need to power their homes, the state has decided against making big changes in the way its four electric utilities go about buying the power they need to supply their customers.

The Board of Public Utilities (BPU) this week essentially kept in place the same system it has used for the past nine years, allowing electric distribution companies to buy the supplies they need in two simultaneous online auctions with power suppliers, usually early in February.

The system, which has been used as a model for other states that have deregulated the energy sector, has won praise from some for helping to restrain big spikes in electric bills when fuel prices, particularly natural gas, soar. This happened a few years ago when Hurricane Katrina disrupted gas drilling in the Gulf of Mexico.

One-Third Power

The auction allows the utilities to buy one-third of the power they need each year, a system that tends to moderate electric bill increases by blending the price over three different years. When prices drop, however, the utility's customers are locked into higher prices from the previous years and do not see lower electric bills.

That scenario occurred this past year, opening up an opportunity for other power suppliers to come in and compete for residential customers for the first time since the state broke up the electric monopolies in 1999. Companies like Constellation are offering customers up to a 12 percent discount on what their traditional utility is charging them.

Under the deregulated system, the utilities -- Public Service Electric & Gas, Jersey Central Power & Light, Atlantic City Electric, and Rockland Electric -- make no profit on the power they purchase for their customers. Their earnings derive from the electricity and gas they deliver to customers through their pipelines.

Counting Customers

In retaining the current system, BPU commissioners agreed the state needs to get a better handle on the number of customers who are switching suppliers. The BPU’s website says nearly 70,000 residential customers have switched, but representatives of so-called third-party suppliers say the number is much higher.

It is important for the distribution companies to have accurate numbers on how many customers are switching because it dictates precisely how much power they need to lock up in the February auctions to ensure they have the supplies to keep the lights on.

Jerry May, director of the BPU’s Division of Energy, said it is not clear how great is the penetration rate of the third-party suppliers.

Acting on recommendation of a trade group representing some of the third-party suppliers, the agency also is in the process of setting up a new website where customers can voluntarily disclose energy needs and information, a system that would cut the high cost of marketing for new customers.

The BPU also will explore carving out a separate auction to meet the state’s renewable energy portfolio standards (RPS). Each year, the state increases the percentage of electricity that suppliers must deliver from renewable energy sources, such as solar and wind power. Some staff have argued for having a separate auction for renewables, a step that would reduce risk in the main auctions and likely lower prices to consumers.

Commissioner Jeanne Fox said the state should pursue that option. “I think it makes sense to break out the RPS," she said.

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