OCTOBER 27, 2001- 10:45 AM
ROBESON CAMPUS CENTER
RUTGERS UNIVERSITY, NEWARK

COMMENTS OF BLOSSOM A. PERETZ, ESQ.,
DIRECTOR, NEW JERSEY DIVISION OF THE RATEPAYER ADVOCATE
PRESENTED BY SUSAN McCLURE, ESQ., STAFF ATTORNEY

Good morning. On behalf of the New Jersey Division of the Ratepayer Advocate, it is a pleasure to be here today to offer our perspective on the status of energy deregulation and municipal aggregation in New Jersey. By way of background, as most of you probably are aware, the restructuring or "deregulation" of the energy industry now allows all customers in New Jersey to choose a competitive natural gas or electric generation supplier. In other words, customers may "switch" from their electric or gas utility to a competitive or "third party supplier" for the supply of their power. However, the distribution of the energy in New Jerseys to customers remains a public utility function, carried out by the local utility that serves each customer.

The Electric Discount and Energy Competition Act ("EDECA" or the "Act") mandated the start of electric competition in New Jersey in August of 1999 however, retail customer choice was not implemented by the utilities until November of 1999. Among the clear goals of the legislature in implementing retail energy choice were lower prices, an increase in competition, advances in technical innovation and an improved state economy due to lower energy costs. Unfortunately, retail electric competition is not living up to its promises.

According to the Board of Public Utility’s (the "Board") most recent estimates, as of May 2001, approximately 30,000 residential electric customers switched to a third party supplier. Although this number does not reflect the number of customers that may have seriously considered other suppliers but decided to stay with the utility, approximately 30,000 customer switches means only a small percentage, about 1% of the residential customers. From this data, it becomes clear that New Jersey can do better to encourage competition in the State. Although the Board’s monthly updates on customer switches do not provide the number of switches by rate class, I assume small commercial customers have a correspondingly small percentage of customers switching as well. Government aggregation is a key element of the Act that could go a long way to bring the benefits of competition to New Jersey residents and small businesses.

As you may already know from various newspaper articles and energy education materials, "aggregation" means pooling of customers into buying blocks to purchase energy -- either electric or natural gas or both. Traditionally, "economies of scale" favored buying power of large industrial customers over residential and other small customers, but by pooling their energy needs, small customers can be treated like large customers. In other words, aggregation allows small customers to gain the "market power"or the "bargaining power" they need in order to be attractive to the energy suppliers entering the new market. The benefits are clear, aggregation allows customers to obtain lower prices and better services than if they purchase energy alone.

As government officials, you may wish to start a government aggregation program in your community. But what does it mean for a government to aggregate? Under government aggregation, the municipality, or under certain circumstances counties, act as a facilitator on behalf of energy consumers in its town to:

1. organize a pool of customers interested in purchasing as a group to realize greater savings; and
   

2. solicit bids from licensed suppliers through an RFP process for supply of energy and, select the supplier that offers the most advantages for the customers who are aggregated.

The pool of customers can be residents of the town who choose to join the aggregation, businesses in the town, schools; and even the towns themselves

It is important to note that in New Jersey membership in the program is voluntary i.e., customers can either, join the aggregation group; remain with their existing energy supplier (old utility); or negotiate independently with another supplier.

The current legislation permits two distinct types of government aggregation: 1) the "opt-in"program; and 2) what I will call the "modified opt-out" program.

Generally, "Opt-in" government aggregation requires constituents of a local government to affirmatively elect to be a part of the aggregation pool, usually by submitting a written notification or consent form back to the government aggregator expressing their intent to be a part of the aggregation. New Jersey’s opt-in aggregation follows this form.

The second government aggregation program permitted by the Act, however, is substantially different from the "pure" opt-out program as applied in other states like Massachusetts and Ohio. A pure "opt-out" government aggregation program requires the constituent of a municipality to affirmatively decline to participate in the government aggregation program. All citizens in the town who do not submit a written notification that they will not participate in the government aggregation program is considered a part of the aggregated pool. This form of aggregation eases the process of obtaining enough participants to make the program economical.

New Jersey’s modified version of the opt-out allows consumers to opt-out of the aggregation program at the outset of the program but requires the government aggregator to obtain a written commitment ("wet signature") to participate in the government aggregation at the tail end as well. This extra step of obtaining wet signatures before a government aggregation programs can begin is a drastic and substantive change from a true "opt-out" government aggregation.

Convinced that local government can offer its constituents an invaluable service by aggregating, municipalities in other states have started aggregating their towns. For example, a group of 21 towns and two counties located in the Cape Cod area organized an aggregation group called the Cape Light Compact. On August 10, 2000 the Massachusetts Department of Telecommunication and Energy authorized the Cape Light Compact to go ahead with its aggregation program that includes residential, business and government loads. The aggregation program successfully negotiated savings for the participants over their basic generation rate. After a two year competitive bidding process, the Cape Light Compact chose Select Energy as their competitive supplier.¹ The savings obtained by the municipalities is estimated as approximately $20,000 -$140,000 a year.² Although the savings for residential customers may not be as great, having the aggregation pool already in place positions the towns to contract for more savings in the future. I believe the success of the plan was largely due to the program’s opt- out provision which assumes that consumers living in the participating towns are in the programs unless they expressly opt-out. This is the model used by Monroe Township in its successful aggregation pilot program in New Jersey.

Another example of a successful government aggregation program comes from our neighboring state of Pennsylvania. Hampton Township added their own electric needs with that of 6,000 residential households in their town to access the benefits of government aggregation. The benefits to the town for aggregating?-- a savings of $22,000 or a decrease of 20% of the town’s electric bill and a 6.7% decrease for residential customers.³

Finally, Green Mountain Energy Company recently won a bid to serve 400,000 customers through an opt-out government aggregation program started in Ohio. I will leave that discussion for Mr. John Holtz of Green Mountain, here today.

The Division of the Ratepayer Advocate believes that after two years of working with the Act, it has become apparent that changes must be made to the legislation to make the standards "user friendly" for the municipalities that are entrusted with the task of aggregating their citizens. The most significant barrier has been the "opt-in" rather than "opt- out" requirement for municipal aggregation customers.

The restructuring of the electric and natural gas systems open new opportunities for local government involvement in the energy sector. Most promising, by combining its citizens into one large buying group, a municipal government can facilitate the purchase of cheaper power and reduce rates for residential and small businesses who otherwise might not fully enjoy the promise of the competitive marketplace. Using the power and functions of local government to provide lower energy costs for customers provides an option that is non-profit, non-discriminatory, subject to open-bidding laws, subject to public ethics laws and practices, and subject to local control by consumers who are voters.

As these and other government aggregation programs show, by coupling the municipal power needs with the energy usage of residents and businesses in the municipality, greater savings can be made. This is true because generally the peaking or demand requirements of a municipality may balance the load of a business or the residents.

To assist municipal officials in deciding whether organizing a government aggregation program is beneficial to them, the Ratepayer Advocate has published and distributed the Manual for Government Aggregators, a guide to the government aggregation section of the Act. The Manual is a step by step description of how to form an aggregation program with sample contracts and model resolutions and ordinances. If you do not have a copy and would like one, I would be happy to provide one at the close of this workshop. We have also compiled a Consumer Assistance Handbook that I would be happy to provide copies of.

Thank you

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1) Re Towns of Aquinnah, Barnstable, Bourne, et al. D.T.E. 00-47, 203 PUR 4th. Back

2) "Cape Electric Compact OK’d", Cape Cod Times, August 11, 2000. Back

3) Dinah Wisenberg Brin, Groups Wield Buying Power In Pa.’s Electricity Market, Dow Jones Newswires, June 21, 1999. Back