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.

By Chrysa Smith

It’s been said that choice is the ultimate luxury. Since 1999, New Jersey businesses and residents have had the luxury of choosing which utility company from which to purchase gas, electricity, and heating fuel; but with choice often comes challenge. Along with their new options and the predicted benefits of a more competitive marketplace, New Jersey residents have also had to deal with the changes and questions raised by the state government’s deregulation of energy providers.

The Balance of Power

In 1999, the New Jersey Board of Public Utilities (NJBPU)—the governing body for electric, oil and natural gas services—introduced a bill to deregulate the state’s energy industry for residential customers. (New Jersey’s commercial energy market had been opened up earlier in what some say was an attempt to keep local corporations happy and committed to staying put.)

The goal of the Electric Discount and Energy Competition Act (EDECA) was to enable New Jersey energy consumers to shop around and chose the energy provider that best suited their budget and service requirements. The free-market rationale hinged on the prediction that enough healthy competition between providers would keep prices down while offering better service and reliability to customers. Under the auspices of the federal Department of Energy, New Jersey took measures to safeguard free market competition for electricity and gas, including the requirement for the NJBPU to “unplug” power stations with higher costs than other available energy sources.

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According to Betty Kennedy, public relations coordinator for Conectiv Power Delivery, an independent utility provider based in Carney’s Point, New Jersey. “Up till 1999, when the state voted to restructure the energy industry, each company had a specific service area.”

Conectiv—which services eight counties in southern New Jersey—claims that the deregulation has reduced their customer’s rates by 10.2 percent, saving them a cumulative $290 million during the years from 1999 to 2003.

But the story is a bit more complex. Conectiv, and the states other 21 licensed electric suppliers and 29 licensed natural gas suppliers are, as their names indicate, suppliers. They provide the hardware—the lines and cables—and once those are in place, they also provide the power that flows to New Jersey commercial and residential customers. That power may have been purchased from companies several states away, or it could come from oil, coal or renewable energy sources. Energy may even be bought and sold much like the stocks in an investment portfolio. If it’s important for a customer to know where the cool flow from their central air system comes from, or the juice that runs the building elevator, post-deregulation, that customer now has a voice.

According to Terry Moran, manager of Retail Choice for Public Service Electric & Gas (PSE&G) in Newark, New Jersey’s largest energy provider, “Since the transition period for New Jersey, the largest change is that we no longer own generation. We are now a pipes-and-wires company.”

Enter the ESCOs

Though the playing field has changed somewhat, the delivery companies—called Energy Service Companies, or ESCOs – have remained essentially the same. Since deregulation, it’s the transmission that has changed. Out-of-area transmission companies, called third-party suppliers, are now in competition with area companies who once dominated their own market.

“The restructuring act has allowed New Jersey to move forward to look for better prices in the state,” says Kennedy. “Our customers pay less than they did in ’99.” This has been accomplished, thanks in part to the annual Basic Generation Service, or BGS, auction. Each February, according to PSE&G spokesperson Karen Johnson, transmission companies gather together to offer energy packages to service providers. Suppliers can pick up an energy contract for a year or two, or more at wholesale auction.

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“For the customers that have chosen to stay with [us],” says Johnson, “we secure the power through the annual energy auction that allows them to buy in a wholesale [market], where prices are competitive. PSE&G is the utility that is part of the Public Service Enterprise Group (PSEG) parent company, who also owns PSEG Power—the unregulated generation side.”

And, says Kennedy, much like commodities of all kinds, the buying can be ‘locked in’ at a specific rate—called fixed pricing—or float with the market value through its natural cycle of ups and downs—called variable pricing.

Not a Flawless System

While the provision of greater choice and potentially lower costs seems appealing, the program has not been without its problems. According to a report published by The New Jersey Public Interest Research Group’s Citizen Lobby and Law & Policy Center in Trenton, “New Jersey pays 50 percent more than the national average for our electricity. And energy providers, for the most part, are offering the same old fossil-fuel and nuclear-generated electricity.” For the programs first four years, the rates were frozen for electric utilities, and some customers actually saw savings of 10 percent on their electric bills. Yet now, as pricing caps come off kilowatt rates, it remains to be seen what the full affect will be.

“One of the biggest fallacies of deregulation,” says Janet Garofalow, assistant vice president and manager of sales and marketing for Castle Power LLC—a Harrison, New York-based fuel oil and natural gas service provider with a satellite office in Englewood—”is that we can’t guarantee that we can save our customers money in comparison to the utility commodity cost when they fix a price at a certain time. We can’t predict what the market will do going forward.”

Garofalow goes on to explain that to a large extent, the market is controlled by the weather. “In the winter, one reason for gas prices rising is the cost of transportation for the gas, due to increased demand. In the winter of 2002, when we never wore a winter coat, pricing came down.” To a large extent, the energy market is a gamble in commodities futures—where knowledge of the market and good planning come into play.

Maneuvering Through the Maze

One of the biggest attractions to third-party energy suppliers has been the advent of aggregation. And it may just be one of the largest benefits to multiple dwelling communities sharing real estate management companies. According to Alyssa Weinberger, director of regulatory affairs for Hess Energy Marketing in Woodbridge, “Buying bulk would be advantageous. With an aggregation of individual customers into larger groups, you can get better deals.”

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Hess—along with several other suppliers who deal with commercial and industrial customers—have done just this for multiple dwelling communities, and even area school districts, in order to reduce costs. Management companies should be aware of these and other options for energy conservation under current energy systems.

Most ESCOs and third party suppliers will tell you that their marketing efforts have not been anything like those of the deregulated phone companies, and that the resulting switching of suppliers—at least on the residential side—has been marginal. Right now, the BPU estimates that third party suppliers represent less than six percent of service to gas customers and fewer than 3.5 percent for electric supply switchers.

According to Johnson, PSE&G currently has 1.6 million gas customers and two million electric customers. “Some have both gas and electric,” says Johnson. “We serve about 75 percent of the state’s population on a north-south diagonal that follows the New Jersey Turnpike.”

“The percentage of customers who have changed is not large,” adds Moran. “On the electric side, most of those who have switched have been the largest customers. We roughly have about 18 percent of our [megawatt] load switched. For gas, we have roughly 30,000 customers who have switched to third party suppliers.”

If you think your association might benefit from joining that percentage, all it takes to make a change is a phone call and a signed contract—which some suppliers say can be done by a board member. Yet, in this transition period, and in the age of all too common legal proceedings, having the input of an informed accountant and an attorney review would be prudent. Especially in the case of buying power for entire communities, the stakes are high, contracts are involved and costs of litigation even greater.

“You need a service provider who you can go to and ask questions,” Garofalow adds, “Although [the energy business] isn’t rocket science, it is complex.” Before your board even thinks of making any changes in your utility provider, it makes sense to be sure that the people responsible for the purchase of energy understand the terms, the bills and the contracts.

According to Moran, “Billing can be done in a few different ways. For Basic Generation Services (BGS), all charges can be contained in one utility bill. Third party suppliers have a variety of options that are set forth in their contracts.”

Like a fixed mortgage, a fixed rate is fairly straightforward, and can be budgeted for accordingly. For a variable rate, it helps to know the index to which the rate is tied. According to Weinberger, “Some large customers have been put on hourly pricing versus a fixed rate—the advantage being that you pay for what you really use, with the ability to see where spikes are.”

Eric Hartsfield, a spokesperson for the NJBPU, indicates there are many options. “In the case of a condo, you may have one company providing service for the common/general areas, while another may provide service to the individual unit owners.”

Other Considerations

It also helps to be informed about the latest programs from providers that may benefit your community down the road.

“We recommend that dual-fuel boilers be put in if possible and if it makes economic sense to the customer,” says Garofalow—providing the option of burning natural gas or alternate fuel as the state of the market may dictate. Programs like the New Jersey Clean Energy Program (www.njcleanenergy.com) offer multiple promotions that provide cash incentives for changing systems that are cleaner or more efficient. So, when a community looks at their energy costs, they might consider replacement time for heat pumps, air conditioning systems and boilers in addition to their bills. If timing is right, there could be savings all around.

Information is out there, however, in the form of conferences, customer awareness programs and directly from the BPU (www.bpu.state.nj.us). The more informed the management company, condo or co-op board, the easier it will be to maneuver through this kilowatt maze without it becoming a drain on an association’s time and budget.

To find out more about saving opportunities in the NJ deregulated utility market email george@hbsadvantage.com or call 856-857-1230.

Chrysa Smith is a freelance writer and a frequent contributor to The New Jersey Cooperator.

June 3, 2010    as reported by electricitywatch.com

On June 1, new summer default rates went into effect for all New Jersey customer s being serviced by JCPL (Jersey Central Power & Light) who are still on the utility’s price to compare default rate.

While residential competitive electric providers remain limited in the state, there are roughly two dozen competitive electric suppliers offering lower rates for commercial and industrial customers compared to the JCP&L default price to compare rate.  Business customers in the GS rate class will pay a rate of $0.115462 from June through September of 2010, and then pay $0.110205 from October 2010 through May 2011.  Current fixed competitive electric rates in the area are in the low $0.10s per KWh resulting in savings for most businesses between 8-14%.

Default rates in JCPL are derived from auctions the utility performs in previous years for the current year.  Due to lower natural gas prices, current market rates for electricity are lower than the current default rates resulting in saving opportunities for businesses.

For more inf0rmation on Jersey Central Power and Light competitive rates, send an email to george@hbsadvantage.com .