Nearly 1,000 businesses could see a sizable drop in their energy bills next year, thanks to a decision by the state Board of Public Utilities (BPU) to eliminate an eight-year-old surcharge on their electric bills.
The BPU voted yesterday to eliminate the so-called retail margin fund, a fee it enacted in 2002 as a way of encouraging small businesses to shop around when they buy the electricity they need to power their companies. The change is effective June 1.
To a large degree, the retail margin fund worked. Approximately 2,500 businesses are subject to the surcharge, but only 850 actually pay it, since they still receive electricity from their incumbent utility. The rest have switched to new suppliers, which requires them to pay for electricity based on an hourly price — a system that could drop energy costs if managed properly.
The surcharge has long been a target of business lobbyists, who say it increases energy costs in a state already burdened with some of the highest electric rates in the country. At its peak, the surcharge raised $23 million a year. It was projected to raise $13.8 million in the next fiscal year.
“It’s wonderful news,” said Sara Bluhm, an assistant vice president of the New Jersey Business & Industry Association, which had lobbied for abolition of the charge. “If this is bringing in over a million dollars a month, that’s a big break for businesses.”
When the surcharge was adopted, state regulators believed it would level the playing field for third-party electric suppliers so they could compete with the incumbents, whose administrative, marketing and other costs were already built into their business model.
Jerry May, director of the BPU’s Division of Energy, said the fund has served its purpose. He added that 35 third-party suppliers now compete to provide electricity to a variety of businesses, typically big-box stores, anchor stores in malls or small hospitals.
That view was endorsed by the Division of Rate Counsel, but opposed by a pair of trade groups representing third-party power suppliers. In addition, Constellation Energy, which has begun marketing electricity to residential as well as commercial customers in New Jersey, urged the surcharge be retained and expanded to all customers, including residents, noted May.
With a steep drop in natural gas prices, which is the fuel used by many third-party suppliers to generate electricity, customers are now looking for alternatives and cheaper sources of electricity, the BPU commissioners said. “I think shopping is happening,” said Commissioner Joseph Fiordaliso. “It’s gotten to the point where it should be terminated.”
BPU President Lee Solomon agreed. “It appears the marketplace has driven people to shop,” he said. “We ought to let the market work.”
Beyond the cost of the surcharge, critics of the fund noted money raised by the fee was supposed to be set aside in a special fund, which would help the state build new combined heat and power plants. CHP plants generate electricity and steam simultaneously and much more efficiently than most traditional generating stations. The state’s Energy Master Plan calls for building 1,000 new megawatts of CHP plants by 2020, which would be enough to provide electricity to about 800,000 homes.
Instead of putting the money aside, the Christie administration, facing huge budget deficits in its first months in office, siphoned off $128 million from the fund to balance last year’s and the current fiscal year’s state budget. The move angered the business community and environmentalists.
Last month, the administration announced it would set aside $18 million in federal stimulus funds for a competitive grant program to finance about a half-dozen CHP plants. The program will be jointly administered by the BPU and New Jersey Economic Development Authority.
Asked where the state will find the funding next year to build CHP plants, Solomon replied, “all of those questions are up in the air and will not be decided until we finish our review of the Energy Master Plan.”
Bluhm argued there are mechanisms to pay for the projects, citing the state’s clean energy fund and a regional program to control greenhouse gases as two possible sources of funding.