Third-Party Power Suppliers Challenge Incumbents for Customers

Independent power suppliers are asking the BPU to rewrite the rules to make it easier for them to sign new customers

With consumers finally having an option to buy cheaper electricity, independent power suppliers are pushing for changes in state rules to make it easier to sign up customers from the state’s four electric utilities.

A steep drop in natural gas prices has created favorable conditions for so-called third-party suppliers to come into New Jersey and offer residential customers lower energy prices than the public utilities, a situation that has led tens of thousands of customers to switch.

It is the first time residential customers have switched in droves since the state deregulated the industry in 1999. Previously, third-party suppliers could not undersell the utilities. The incumbents bought their power in bulk, paying discounted prices because of the the large number of customers they had. Other suppliers could not get such discounts because they were buying less power.

Also, in an effort to prevent big spikes in electric bills caused by a rise in fuel prices, as happened with natural gas, the utilities buy one-third of the power they need every three years and come up with a price based on a three-year average.

The system has worked well in years when gas prices spiked, but works against consumers when the fuel prices drop. With the utilities locked in to the higher prices from three years ago, third-party suppliers are luring customers away by offering discounts of 15 percent or more.

As of August 2010, more than 45,000 residential customers had switched to third party suppliers, according to the most recent data on the New Jersey Board of Public Utilities website.

But third-party yes power suppliers claim the number is much greater.

Viridian only started signing up customers this past May and it claims to have 60,000 residential and commercial customers, according to Joseph Mattia, an associate at the Connecticut-based firm. It promises customers lower prices, does not require a contract, and purchases 20 percent of its electricity from wind farms, Mattia said.

Still, even with the recent success enjoyed by the third-party suppliers, Murray Bevan, who represents the Retail Energy Supply Association, said New Jersey still lags far behind New York and Connecticut in the number of residential customers who have switched suppliers.

In general, the suppliers are pressing the board to review switching procedures to make the enrollment process more convenient for customers. They also want to eliminate a 30-day notice requirement to terminate a customer’s service because of nonpayment of bills.

More specifically, Bevan’s trade group wants the BPU to develop a Customer Match Page, a board-hosted web page where customers can voluntarily disclose energy needs and information, a system that would cut the high cost of marketing for new customers.

“What we’re trying to do is make it easier to reach customers and make it more effective,” Bevan said.

The four electric utilities—Public Service Electric & Gas, Jersey Central Power & Light, Atlantic City Electric and Rockland Electric—have jointly submitted written comments, urging the state to retain the current rules.

“Particularly in these current economic times, now is not the time to loosen the requirements associated with customer switching verification or a TPS’s [third-party supplier’s] obligation to drop a customer and push the customer back onto the BGS,’’ they wrote. BGS refers to Basic Generation Service, the power purchased by the utilities to supply customers who do not switch.

The utilities also opposed efforts by third-party suppliers to be able to quickly drop customers who do not pay their bills, arguing that is a routine cost of business that they ought to continue to shoulder.

The state is expected to adopt new rules governing energy competition sometime early next year.