More than 25 cents of every dollar of a typical residential electrical bill can be attributed to state policies, a situation that is causing New Jersey regulatory officials to question whether all of those programs are necessary.
With the Christie administration re-assessing New Jersey’s two-year-old energy master plan, the factors contributing to high energy bills for residents and businesses may emerge as the crucial issues in what changes are made in the document and, more importantly, in whether ratepayers see their bills go down.
Clean Energy Advocates Cautious
As part of that effort, the Board of Public Utilities is beginning to break down the costs of various programs enacted by the state over the years that are driving up gas and electric bills. That process is worrisome to clean energy advocates who fear New Jersey might scale back some of its aggressive policies to reduce energy consumption and promote solar and wind power.
In a preliminary update of the plan prepared by Rutgers Center for Energy, Economic & Environmental Policy, state policies accounted for 26 percent of a residential electric rate in 2009. The policies cover a wide array of programs, some dating back to the deregulation of the electric and gas industry more than a decade ago.
Still Collecting Stranded Energy Costs
For instance, a transition bond charge, amounting to about $5 per month for the typical residential customer of Public Service Electric & Gas stems from stranded costs the state agency allowed the utility to recover when the its monopoly ended in 1999. The charge will end in about four years.
Other surcharges are more recent, many associated with the state’s aggressive efforts to reduce energy consumption by 20 percent by 2020 and to increase the use of renewable energy percent by 30 percent by the same date. A big chunk of that money comes from the so-called societal benefits charge, which raised $740 million from ratepayers last year, although it also funds other programs such as low-income energy assistance programs.
Other smaller costs are reflective of efforts to reduce greenhouse gas emissions by regional power plants, as well as renewable energy certificates, particularly those involving solar systems. These are earned by people and businesses that install those systems and earn credits for the electricity the units generate.
“There’s a fairly significant amount of every energy bill attributable to policies either enacted legislatively or by this board which are totally unrelated to the underlying cost of energy,’’ said BPU President Lee Solomon, who called the 26 percent “striking.’’
A Mandate to Lower Power Costs
Solomon said he has an open mind on the issue, but added bringing energy costs under control is a particular mandate of Gov. Chris Christie. Some business interests commended the agency’s decision to examine the cost of various policies more closely.
“It’s extraordinarily important that all these data inputs be clearly analyzed in terms of setting policies going forward so people understand what they are paying for each month,’’ said Steve Goldenberg, an attorney who represents large users of energy, such as pharmaceutical companies and other manufacturers.
Not Under State Control
As expected, the bulk of energy costs are attributed to the wholesale cost of generating electricity (47 percent) and distribution (27 percent). The state has no control over the price of producing electricity anymore since it deregulated the industry, and utilities are guaranteed a specific rate of return on investments in making sure the power is delivered to homes and businesses. That leaves state policies an avenue to have an impact on energy bills, which businesses have long complained is a factor in New Jersey losing jobs to other states.
That argument leaves some frustrated. “It’s totally unfounded,’’ said Matt Elliott, clean energy advocate for Environment New Jersey. “There is no data to justify that. It seems there is a political agenda at work here to ratchet back our clean energy goals.’’
Solar energy advocates argued the incentives enacted by the state reflect only a very small portion of the energy costs imposed by state policies, particularly with the revamping of New Jersey’s solar program from one based on rebates to one driven by market incentives.
Still, Terry Sobolewski, business development manager for SunPower, said it was appropriate for the state to try and reduce energy costs. “I’m concerned that the analysis and assessment weighs not just the cost, but the benefits of solar power,’’ he said.
Peak Demand for Solar
Solar tends to generate the most electricity during times of peak demand, usually in mid-afternoon on hot, sunny days. That fact tends to depress electricity prices to consumers because the power it is replacing tends to be the most expensive—electricity produced by older, less efficient power plants, which only run a few times a year. “That’s a very sizable amount that reduces rates,’’ Sobolewski said.
Assemblyman Upendra Chivukula, the chairman of the Assembly Telecommunications and Utilities Committee, said many of the costs related to state policies are tied to the energy deregulation bill passed a decade ago.
If the state wants to rein in energy costs, it ought to look at making the Office of Clean Energy more efficient, Chivukula said, rather than scaling back clean energy programs. “We can’t suddenly pull the plug on these programs,’’ he said, citing the state’s commitment to reduce greenhouse gas emissions, a promise that led to a state law to deal with the problem.
Nonetheless, the debate is likely to intensify in the coming months, given that other costs associated with state policies have yet to be calculated. These include more aggressive solar goals enacted this past January by the legislature and the cost of building 1,100 megawatts of offshore wind power, which is the goal of a bill signed into law by the Governor last week.