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Helping Consumers Comparison Shop for Power

Tom Johnson | October 19, 2012

Legislation looks to do what deregulation couldn't, encourage more customers to switch electricity suppliers

The state wants to make it easier for consumers in New Jersey to pay less on their electric bills by making it less difficult to find the cheapest suppliers of power.

In a bill (A-2132) approved unanimously by the Assembly yesterday, the measure would direct the New Jersey Board of Utilities to adopt regulations requiring electricity suppliers to provide information to customers to compare prices and services.

The proposal mirrors an effort already underway at the state agency to copy a Pennsylvania website widely regarded as a model for providing information to residents and businesses about choosing a new energy supplier.

Both efforts reflect frustration among lawmakers and officials over the low switching rates in New Jersey, particularly among residential customers, since the state broke up the electric monopolies in 1999. The deregulation was passed with the expectation it would lower electric bills for consumers and businesses, which repeatedly have ranked among the 10 highest in the nation.

For most of the following decade, only a fraction of customers switched to cheaper suppliers, a trend deregulation proponents failed to predict. In the past few years, however, switching among residents has increased with the steep drop in natural gas prices, although hardly measuring up to other states, which also have deregulated the sector.

In New Jersey, about 14 percent of residential customers, or 479,145 accounts, have switched to new electricity suppliers, according to data compiled by the BPU as of August 2012. In February, only 5 percent had switched.

The switching rate is much higher for larger commercial and industrial facilities, largely because they pay for electricity based on actual current market conditions. That is different from residential customers who are guaranteed a fixed price established in annual power supplier auctions run by the BPU.

According to the BPU data, 27 percent of commercial and industrial accounts have switched to alternative suppliers, accounting for 68 percent of the total electricity load in New Jersey. Of the state’s 3.9 million electricity accounts, 615,990 have switched, reflecting 44 percent of the electricity load.

The drop in natural gas prices, a fuel that produces much of the electricity in the state, has lured more retail electricity suppliers to New Jersey. In some of the four electric utility territories, up to 54 so-called third-party suppliers are trying to undercut the incumbent electric utility's prices.

“We want to arm New Jersey consumers with adequate and accurate price comparison information that will enable them to make informed choices when it comes to purchasing electricity,’’ said Assemblyman John Burzichelli (D-Gloucester), a sponsor of the bill. “Every dollar counts , especially these days, so we should be doing what we can to help consumers save.’’

Assemblyman Daniel Benson (D-Mercer), a cosponsor agreed. “Any electrical customer in New Jersey is eligible to shop around for an electric energy supplier, but this can become a daunting and complicated task,’’ he said. “Making it easier for consumers to comparison shop and save money is the sensible thing to do.’’

The bill now will be referred to the Senate for consideration.

The retail electricity supply industry is pushing the state agency to revamp its current system of buying power from electric utilities, a process they argue creates an artificial price, making it difficult, if not impossible, to build a robust competitive market.

Under the current auction system, the state utilities buy one-third of the power they need to supply customers at a fixed price. The other two-thirds is also purchased under fixed-price contracts in the prior two years, a system that has worked well when natural gas prices spike during unusual events, such as hurricanes disrupting drilling in the Gulf of Mexico.

When natural gas prices fall, however, customers are locked into paying above-market prices for the fixed-price contracts awarded in the auctions. The state is considering changing the current auction from the three-year system to one involving a mixture of long-, medium- and short term purchasing arrangements, but has not yet made any decision.

At a NJ Spotlight Roundtable held earlier this year, state officials, retail executives, and others agreed that the state needs to do a better job educating consumers about the choices they now have and informing them of opportunities to not only lower their bills, but also to obtain other benefits.

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