BPU Power Auction: Will Low Natural-Gas Prices Hold Down Electricity Rates?

Tom Johnson | February 1, 2017 | Energy & Environment
Most customers have seen prices dip slightly or stay mostly steady over past few years. Will trend continue?

The state is gearing up to decide where to spend about $6 billion or so of ratepayers’ money.

In an annual ritual, the New Jersey Board of Public Utilities is conducting an auction starting Friday to determine, in part, the price most residential customers will pay for their monthly electric bill, beginning next June.

The auction, the 16th conducted by the regulatory agency since New Jersey deregulated the energy sector, is the mechanism the state uses to lock up the power needed to keep lights on for residents and businesses that do not bother to shop around for a better electricity deal.

For the most part, the auction has been generally viewed as a successful model to buy power for customers. With a sharp drop in natural-gas prices, most customers have seen their bills decline or stay steady in recent years, although prices went up a bit following last year’s auction for all utilities, except Jersey Central Power & Light.

The auction draws little public attention despite the billions of dollars at stake among energy companies bidding to supply electricity to consumers. Last year’s auction secured $6 billion worth of power commitments involving more than 8,400 megawatts. One megawatt powers about 800 homes.

There were 11 different companies winning contracts to supply power in last year’s auction.

As in years past, two separate online auctions will be held; the first, beginning Friday, involves larger commercial and industrial customers. The second, for residential and small commercial customers, begins Monday. The auctions are expected to end sometime next week with results announced a few days after.

In both auctions, the prices that are determined by the bidding cover the cost of generating electricity, which is then passed on directly to customers by the state’s four utilities. However, those costs can be increased by other factors, primarily the price the utilities get for delivering power over local poles and wires, and the cost of using transmission lines from power plants to substations.

In addition, other costs add to customers’ bills, including the expense of ensuring there is enough power in reserve to meet customer demand, as well as surcharges to pay for various programs, including clean-energy initiatives and low-income energy-assistance programs.

Given the current energy markets, it is difficult to project what customers will see as a result of this year’s auction. The U.S. Energy Information Administration, in its recent Short-Term Energy Outlook, is projecting higher natural-gas prices in 2017 and 2018.

Consumer advocates are hoping to see prices drop, however, citing the decline in natural-gas prices in recent years, said Ev Liebman, associate director of AARP of New Jersey.