Bill Would Let Towns Band Together to Buy Wholesale Power

Shared-services energy companies could mean cheaper electricity for consumers

In an effort to reduce energy costs, a handful of towns are looking to band together to shop around for cheaper electricity deals.

Modeled after similar arrangements in 37 other states, a bill (A-3668) moving through the legislature would allow three or more municipalities to establish a shared-services energy company that could enter into contracts with municipal electric utilities and private entities to purchase and sell power at wholesale rates.

The legislation would apply to the 10 municipalities that operate their own retail electric distribution systems. But proponents say it offers those and other towns an opportunity to garner significant savings for their municipalities, which, like other communities, have been hard hit by steep rise in energy prices the past decade.

“This is a breakthrough measure that would empower towns to lower costs and leverage delivery efficiencies by pooling their resources to purchase and develop safe and reliable energy sources at more affordable rates,” said Assemblyman Upendra Chivukula (D-Middlesex), a sponsor of the bill who has steered the measure out of the Assembly Telecommunications and Utilities Committee.

Strength in Numbers

Under the bill, at least three or more municipalities would have to put together a shared-services energy company. That is likely to occur since towns have been talking about establishing such a cooperative for the past five years, according to Jim Jablonski, executive director of the New Jersey chapter of the American Power Association.

As with other municipalities, the 10 communities are seeking ways to reduce high energy bills associated with buying power from the PJM Interconnnection, the operator of the regional power grid, and the costs associated with the Reliability Pricing Model (RPM), a tariff imposed by PJM to encourage new power plant construction. State officials say RPM costs consumers in New Jersey more than $1 billion a year.

“When it comes to electric supply and transmission, economies of large scale deliver savings to the consumer. Considering the high costs of infrastructure development, the ability to invest in bigger power projects serves as an advantage,” added Assemblyman Patrick Diegnan (D-Middlesex), another sponsor.

Buying Energy in Bulk

The state long envisioned towns and other entities pooling together to buy energy in bulk at discount rates ever since it broke up the electric monopolies. But because of an overly burdensome regulatory process, no town has done so, although some school boards and other entitites have done it.

Jablonski said the towns that are members of his association are very interested in developing renewable sources of energy. “We will share the costs and share the benefits,” he said.

Some of the towns already have solar installations. Vineland, which also owns generating stations, has 4 megawatts of solar systems installed, according to Joseph Isabella, director of the city’s electric utility. It also plans to bring on 12 more megawatts of generating capacity this summer, paying 2 to 3 cents per kilowatt hour for the power, he said. That is a much better deal than the state’s four electric utilities secured last week when they purchased the electricity they will need for their customers. The cheapest contract was 9.256 cents per kilowatt hour for Jersey Central Power & Light customers.

The bill has raised some concerns from the state Division of Rate Counsel, which represents the interests of all ratepayers. Division of Rate Counsel Director Stefanie Brand expressed concern over provisions in the bill that would require towns that enter into shared-services agreements to pay for the power whether or not it is delivered to them,

Still, other communities think the bill offers a way to reducing energy costs. “We believe this bill may provide an additional option to help municipalities lower energy costs,” said Bill Dressel, the executive director of the New Jersey League of Municipalities.

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