Retail Power Suppliers Want a Competitive Market for Customers

Tom Johnson | February 6, 2012 | Energy & Environment
Participants at latest NJ Spotlight Roundtable argue that current system locks in artificially high prices

With plenty of suppliers active in New Jersey, the debate over whether the state should push more customers into shopping for electricity is likely to become more intense in the coming months.

With nearly half a million customer accounts now served by retail suppliers instead of the state’s four incumbent electric utilities, the industry is lobbying the Board of Public Utilities to revamp its current system, which critics argue creates an artificial price for electricity, making it difficult, if not impossible, to build a robust competitive market.

It is an issue the state agency is likely to take up soon, once the results of this year’s annual electricity auction are known. The online auction, a system in place for more than a decade, began Thursday, but the prices customers will pay for electricity beginning in June should be disclosed by the end of the week.

With natural gas prices still dropping, even advocates of the current system concede it may be time to tinker with aspects of New Jersey’s deregulated energy marketplace.

How much so remains to be seen. Still, the current system for how utilities buy electricity for their customers who do not want to bother to shop for themselves came under repeated fire at a NJ Spotlight Roundtable “Cutting Consumer Electric Bills Down to Size” at The College of New Jersey on Friday.

“Quite frankly, for the residential customers, deregulation has failed,” said Ev Liebman, associate state director, advocacy, of AARP in New Jersey. “We went from a system of regulated monopolies to deregulated monopolies.”

Approximately 5 percent of residential customers have switched suppliers, Liebman noted, leaving the bulk of savings from deregulation to larger industrial and commercial concerns.

Until this past year, there really was not much of an opportunity for residents to switch, but that has changed in recent months with the steep drop in natural gas prices.

More retail electricity suppliers have entered New Jersey — up to 54 in some utility territories — undercutting the price utilities charge their customers for power, which is purchased each year in the online auctions.

If the state wants to build a more robust market, especially for residential customers, then it needs to make sure customers pay a price for their electricity that more closely resembles the existing market price,” argued Jay Kooper, director of regulatory affairs for Hess Corp. and New Jersey state chairman of the Retail Energy Supply Association.

In Pennsylvania, Kooper noted, the prices consumers pay are based on one- or two-year contracts. “Right now, we’re above the market price [in New Jersey],” he said.

In addition, retailers need the state to level the playing field for so-called third-party suppliers. The utilities, which enjoy built-in advantages, make it difficult for retail suppliers to undercut their price. One such advantage: bad customer debts are paid off by a special charge on utility bills.

Under the current auction system, the state utilities buy one-third of the power they need to supply customers at a fixed price. The other two-thirds of the electricity they need is purchased under contracts in the prior two years. This system helps avert big rate spikes when the price of natural gas climbs sharply, which is what happened a few years back when hurricanes disrupted drilling in the Gulf of Mexico.

Now, with natural gas prices falling, customers are locked into electric bills that are higher than the market prices for electricity, according to critics of the current system, who want the state to switch to shorter contracts, possibly one-year deals.

That worries consumer advocates, who believe the current system has prevented price spikes for ratepayers.

“When gas prices were going up five years ago, the three-year deals had locked in prices at a lower cost,” said Paul Flanagan, litigation manager for the state Division of Rate Counsel.

The office is open to changing the current auction from the three-year system to one involving a mixture of long-, medium-, and short-term purchasing arrangements but is opposed to switching to a system involving one-year contracts, a process it believes would lead to wild price swings.

All of the participants on the NJ Spotlight panel agreed that the state, as well as retail suppliers, need to do a better job educating consumers about the choices they now have and informing them of the opportunities to not only lower their bills, but also to obtain other benefits.

Aundrea Williams, senior director of regulatory strategy and policy at NRG Energy, noted there are some suppliers not just offering price discounts on electric bills, but frequent-flyer mileage points as well. “We want to be here. The current market design makes it very difficult,” she said.