If New Jersey consumers are lucky, they could be the beneficiaries of a modest decline in electricity prices when the state’s four utilities next week purchase the power they will need to supply residential customers.
For the past two years, the state Board of Public Utilities (BPU) has seen a small drop in the cost of generating electricity, a trend driven by the sagging national economy and the relatively stable, if not cheaper, price of natural gas. (The BPU purchases power at an annual online auction.)
The same is expected to hold true this year, with most experts saying, at worst, consumers will see the price of the power their utilities buy stay flat, given the still struggling economy and drop in electricity demand.
“Looking at the tea leaves, I don’t see anything radical changing, which is good news for the consumer,” said David Brown, a vice president at NUS Consulting in Park Ridge, a firm that helps businesses manage their utility costs.
An Electric Auction
The online auction, which begins on Wednesday and usually runs a couple of days, is the vehicle the state agency has chosen to buy the electricity it will need to supply the residential and small commercial customers who have opted to stay with their incumbent utility rather than switch suppliers.
Last year, three of the four utilities saw the price of electricity they purchased for their customers drop by up to 1.1 percent, a modest dip that saved customers about $1.38 a month. Consumer advocates are hoping for more of the same this year.
“Given that natural gas prices are stable, we do anticipate consumers getting a break,” said Ev Liebman, program director for New Jersey Citizen Action, the state’s largest consumer organization. “If not, the board ought to have a good reason why.’’
The U.S. Energy Information Administration (EIA) projects that fuel costs for generating electricity will decline about 4 percent in 2011, according to Tyler Hodge, an economist with the agency. “That should moderate any increase to the residential customer,” he said.
With the breakup of the old gas and electric monopolies, however, the board has much less control over bills than it had in the past. It now only regulates the delivery of gas and electric service to the home. It has no control over the cost of generating electricity, a matter of frustration for commissioners who have seen electric bills rise steadily in recent years, largely due to factors outside their control.
Unfortunately for ratepayers, the small savings gained at auction have been offset by other charges on their electric bills, including a tariff aimed at encouraging power suppliers to build new power plants. The charge, amounting to between $1 billion and $1.9 billion a year, recently led to passage and signing of another bill that would guarantee ratepayers subsidies to build two new power plants in the state, which could cost customers up to $2 billion over 15 years.
While prices dropped in the past two auctions, consumers were hit with a series of double-digit increases before that. To try and avert rate spikes, the state purchases one-third of the power it needs to supply customers each year, a strategy that helped avoid the huge increases in bills seen in other states after natural gas prices soared in the wake of Hurricane Katrina.
By averaging electric bills over three years, however, critics say the auction deprives customers of full savings when gas prices drop as they have the past two years. That lag in savings has afforded other power suppliers an opportunity to offer consumers bigger savings than they could obtain from their incumbent utility, which has led tens of thousands of ratepayers to switch suppliers.
Division of Rate Counsel Stefanie Brand has argued the state should not rely solely on the auction to buy the power it needs for customers who do not switch. Her agency has lobbied to try other options, such as having a portfolio manager go out and purchase long-term contracts with suppliers in an effort to cut better deals.
The New Jersey Business & Industry Association also has suggested the state explore if there are better ways of buying power, noted Sarah Bluhm, a vice president of the business organization.