As reported in NJ SpotLight By Tom Johnson, February 8, 2013 in Energy & Environment

The state yesterday announced the results of its annual electricity auction, a process used partly to determine utility bill prices, and the outcome was decidedly mixed in a market some thought would deliver more savings to consumers.

At a time when natural-gas prices are near historic lows, the auction yielded savings for residential and small commercial customers for three of New Jersey’s four electric utilities, with prices dropping by 3 percent to as much as 5.4 percent, effective June 1. It is the fourth year prices have dropped for residents and small businesses.

That’s the good news.

But for larger commercial and industrial customers, prices basically doubled for the electricity they will need, according to a consultant for the state Board of Utilities, which conducted the auction over the past few days. For both residents and larger customers, any increases apply only to the portion of the bill covering the cost of generating electricity, which accounts for about two-thirds of the cost paid by ratepayers.

The contrast in auction results reflects changes in the energy market since the state deregulated its electric monopolies in 1999, and explains partly why even with the steep drop in the fuel that sets the price for electricity, consumers in New Jersey still pay some of the highest energy bills in the nation.

Here’s why:

The BPU no longer controls the price of producing the electricity consumers get from suppliers; the federal government decides how much utilities will earn on transmission projects they undertake; and the PJM Interconnection, the regional operator of the nation’s largest power grid, regulates how much suppliers will earn for making sure the lights don’t go out. On top of all that, the state’s efforts to promote solar energy also are boosting costs, as the BPU conceded in a press release announcing the results of the auction.

The state blamed the surprising large increase for industrial customers on a rise in capacity payments to power suppliers, which ensure there is enough electricity in reserve to maintain reliability on the power grid. Those capacity payments jumped by 65 percent from the prior year, according to the BPU.

That was of little comfort to business lobbyists.

“That’s an awful large increase,’’ said Hal Bozarth, executive director of the Chemistry Industry Council of New Jersey. “It’s a clear signal to me the auction system is broken in many places.’’

The vast majority of industrial and commercial customers, however, have contracts with so-called third-party suppliers, which are not affected by the jump in prices in the most recent auction, BPU officials noted.

The doubling of prices to industrial customers only applies to the relatively few establishments that have not switched from their incumbent utility.

“It’s disturbing,’’ said Stefanie Brand, director of the New Jersey Division of Rate Counsel. “It’s definitely going to have an impact on them.’’

Other factors contributed to the mixed results in the most recent auction.

For Public Service Electric & Gas, the state’s largest utility with more than 2 million customers, more than the three other utilities combined—prices for residential and small-business customers were essentially flat.

Its customers will see their monthly bills rise by 6 cents a month, an increase largely attributed to the billions of dollars the company is investing in new transmission projects ordered by the regional grid operator and the Federal Energy Regulatory Commission. Those projects could lower electric bills in the long run by easing congestion on the power grid, which spikes electricity costs, and bringing more power into the capacity into the state, according to PSE&G spokeswoman Karen Johnson.

The state, however, has contested many of the incentives handed out by FERC, which has rewarded PSE&G with much higher rates of return on a handful of transmission projects, much more than the utility receives for maintaining its distribution lines, which deliver power from substations to homes and businesses.

“We’re not saying we don’t need transmission,’’ Brand said. “But they can earn a fair return on them without earning excessive returns.’’

The price of electricity per kilowatt hour for PSE&G customers in this year’s auction was 9.218 cents per kilowatt hour, almost a penny more than the prior year, Brand said. “Some of these numbers are moving in the wrong direction,’’ she said.

The state is also trying to address the rising costs of capacity payments by giving subsidies to new power-plant developers, a controversial strategy under attack from both incumbent power suppliers and the PJM.

Nonetheless, three new power plants, one without any state subsidies, are due to begin supplying power in 2015 — too late, however, to drive down costs for this year and next.

Citing the increase in capacity costs, Brand said the auction results show “graphically when efforts have been made to increase investment in new generation and why residents will benefit from it.’’

BPU President Bob Hanna, in a conference call with reporters to discuss the auction results, said it is very hard to predict what is going to happen with natural-gas prices, the main driver in setting electricity prices.

“For now, I see a period of stability,’’ he said.

And for now, some consumers will see a drop in bills. According to the BPU, customers of Atlantic City Electric will see their monthly bills drop by 5.4 percent, or $6.42 cents a month; for Jersey Central Power & Light customers, there will be a decline of 3 percent, or $2.91 per month; and Rockland Electric customers will see their bills dip 5.3 percent, or $6.74 monthly.

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Low prices for natural gas used to fuel power plants may help keep down rates.

By Tom Johnson, January 31, 2013 in Energy & Environment as reported in NJ Spotlight

For the past four years, consumers and many businesses in New Jersey have enjoyed a rare occurrence — a drop in the price of the electricity delivered to their homes from power plants around the region.

Might the trend continue? More will be known by the end of next week when the state Board of Public Utilities holds its annual online auction to purchase most of the electricity needed to power millions of New Jersey homes and businesses.

The results of the annual auction play a big role in determining whether electricity prices fall or rise each June in a state saddled with some of the highest energy costs in the nation.

But in the increasingly complex energy market, the auction is not the only factor: Transmission prices continue to rise and the state has increased the amount of electricity that power suppliers are required to buy from solar-energy systems, which costs more than electricity produced from more conventional power sources. Those and other factors can wipe out any savings achieved in the auction.

The auction typically involves the expenditure of more than $7 billion in ratepayer funds, although that amount may drop given the number of customers who have switched in the last year.

For the most part, state officials and industry executives were reluctant to predict the outcome of this year’s auction, but the general consensus was there should not be a drastic change in consumer prices, given the continued relatively low cost of natural gas.

‘’I don’t think there will be any major swings,’’ said Jay Kooper, the New Jersey chairman of the Retail Energy Suppliers Association, a group representing power suppliers who try to offer customers cheaper electricity than that supplied by the state’s four electric utilities.

With the steep drop in natural-gas prices, Kooper’s members have been much more successful in luring customers away from the state’s utilities, which buy the power they need to supply their customers in bulk in the annual auction held by the BPU. The cost of generating that electricity generally amounts to about two-thirds of a customer’s bill, with most of the rest of the cost tied to the expense of delivering the power over a utility’s transmission and distribution lines.

Natural-gas prices are still historically low, but they have bumped up a bit since last year, according to Tancred Lidderdale, a senior analyst at the Energy Information Administration, an arm of the U.S. Energy Department.

“Natural gas prices are still low, but they are not as low as last year,’’ Lidderdale said, noting that the price of the fuel, which is largely used to power generating stations in the region, was about $2.40 last January in one sector; prices were running at about $3.29 in future contracts in the same sector this month.

The price differential should not have a big impact on the New Jersey auction because of the way state regulators have structured it. Last year, prices for electricity purchased from the power suppliers fell from 1.1 percent to as much as 6.4 percent, depending upon the utility supplying the electricity.

Critics, however, said the price drops could have been steeper if the state’s utilities were not locked into the present system of buying electricity. Under that system, the utilities buy one-third of the power they need for customers each February. By doing so, they avoid the possibility of their customers be hit with huge price spikes when natural-gas costs rise rapidly, as happened during Hurricane Katrina.

The downside is that when natural-gas prices fall, customers do not gain the savings very quickly from their utilities, which has prompted more and more customers to shop around for cheaper energy rates. By the end of December, about 15 percent of more than 3 million residential customers had switched electricity suppliers, way up from the 5 percent who had switched in February.

New Jersey Division of Rate Counsel Director Stefanie Brand, who has argued for changes in the current auction structure, said the lower natural-gas prices may offset other factors driving up costs for consumers.

“Hopefully, it will be good news for consumers,’’ Brand said in a telephone interview. “I would love to see prices go down, but I can’t say I know what’s going to happen.’’

Hal Bozarth, director of the Chemistry Industry Council of New Jersey and a frequent critic of the state’s energy policies, said he would expect prices to go down, given the low natural-gas prices. “I’d be sadly disappointed to see prices go higher,’’ he said. “The rates are so high they are a disincentive for economic development.’’

In New Jersey, energy costs for the industrial sector usually rate as sixth- or seventh-highest in the country, about 60 percent higher than the national average, according to Bozarth.

Kooper, who said the state’s system of buying power needs some structural changes, remained hopeful. “I think there will be opportunities to shop for electricity,’’ he said.