Ami Morita, Esq.
On Behalf of
Blossom A. Peretz, Esq.,
Director
New Jersey Division of the Ratepayer Advocate

Good afternoon. It is a pleasure to be here today to discuss the Ratepayer Advocate’s perspective on government aggregation. As you may already know, our office represents utility ratepayers in our state - residential, commercial and industrial customers.

Today this panel was asked by the League of Municipalities to comment on the status of government aggregation as it exists in New Jersey. The Division of the Ratepayer Advocate was delighted to see that government aggregation was included under the Electric Discount and Energy Competition Act made into law in February of 1999. As you may know, our office has been a strong advocate of government aggregation because we believe it offers an essential option for consumers to act through their local government and gain the benefits of competition. As has been demonstrated in other states, this may be the only viable way in which residents and small businesses can secure the potential benefits of competition in electricity and natural gas supply markets. Before I go into the status of government aggregation in New Jersey however, I would like to briefly talk to you about the merits of government aggregation.

You may be saying to yourself, "yes, I can see that aggregation may provide a number of benefits to the people and businesses in my town but why should the local government take the time and the effort to aggregate when private aggregation is also an option under the Act?" The following are some issues to consider:

• The Act "guarantees" that only government aggregation programs that offer energy prices that are lower than the price of energy offered by the local utility (i.e., Basic Generation Price) will be permitted. See, Act Section 43b.
  
• If the local governments combine their energy needs with those of residential and business consumers, the small energy consumers can achieve greater negotiating power than by pooling only their own use.
  
• Local government officials are publicly accountable through elections ... open meeting laws ... fair bidding laws ... and conflict of interest laws. Local government is set up by local citizens to provide general services to the people. It is by law and tradition a natural aggregator for communities. Local governments are not-for-profit organizations. They have no incentive to withhold the lowest price or best deal from their constituents. And consumers know precisely where to find local officials if they want more information about energy buying groups.
  
• Local governments have acted, on behalf of constituents, to aggregate services such as police and solid waste services in the past so its just another service that the local government can offer its constituents.

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 suppler.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

So how do we in New Jersey, capture the same savings and achieve the same successes through aggregation as the towns in Massachusetts and Pennsylvania? The Ratepayer Advocate believes that the first step is to amend the government aggregation sections of the Electric Discount and Energy Competition Act in order to streamline the process for the government aggregators while maintaining the highest level of consumer protection. Within the last, almost two years since the introduction of the Electric Discount and Energy Competition Act, we have come to realize that certain requirements imposed by the statute on municipalities have become significant impediments to government aggregation efforts. Indeed, the constraints on the ability of consumers to act through their local governments are more imposing than those placed on private aggregators. In brief, these constraints include the requirements of protracted and redundant procedures before an aggregator can execute a contract, an undue limitation on the length of the term of any such contract, the requirement that even where numerous "checks and balances" have been honored that every non-government customer affirmatively opt-in by a written signature and the use of cumbersome contracting procedures not well-suited for fast-changing competitive energy markets where asking a supplier to "freeze" prices for an extended period of time is not practicable. Unnecessary barriers may exist as by-products of well intentioned but not very effective regulation to protect the consumer. As a consumer advocate agency, we are very concerned with protecting the public against unscrupulous businesses. However, over zealous consumer protection efforts should be tempered when such efforts impede access to benefits that the energy restructuring promised to all consumers. A balance between protecting consumer interests which is unquestionably an important goal, with over protection to the point of deterring or undermining the competitive marketplace must be struck. Specific changes to the government aggregation section of the Act should includes the following:

True opt-out --The Ratepayer Advocate believes that to have a successful aggregation program, the Legislation must permit a true opt-out aggregation program in New Jersey. The government aggregation program permitted by the Act 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 are 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 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. Marketers have stated that one of the key reasons competition for residential customers in New Jersey does not flourish is the cost to obtain wet signatures.

Obtaining Customer Information from the Utilities - Giving government aggregators access to certain information that only the current incumbent utilities possess is essential to the success of any government aggregation program permitted under the Act. For example, the utilities should be required to provide government aggregators with a list of names and addresses of all energy customers who receive services within the boundaries of the town or municipality so that government aggregators have the means to notify their residential customers of their affirmative right to decline participation in the government energy aggregation program pursuant to Section 45 a. of the Act. Without the names and addresses of customers, government aggregators cannot: 1) notify all consumers within their jurisdiction of the aggregation program; or 2) identify the customers who did not opt-out as government aggregators are required to do by the Act. There is no other way for the municipality to compile such information other than to obtain the list through the utilities. Recent government aggregation experience where Monroe Township was unable to obtain a customer list for notice purposes is another example of over regulation to the detriment of the well being of electric consumers.

Load profile information is another category of information that the government aggregator will need to successfully aggregate. In the process of choosing a supplier of energy, the government aggregator must have some form of load profile information in every bid specification. Therefore, the utilities should be required to furnish to the municipalities and to government aggregators, aggregate load profiles of all customers compiled by jurisdictional boundaries or by zip code, within a reasonable time after receipt of the request made by the government aggregator. This should be required of all utilities to insure that government aggregators are provided enough information in their bid specification for the suppliers to make a meaningful bid. Suppliers will be in a better position to offer an aggressive price to the aggregation pool (i.e., lower energy prices) the more customer load and usage information they can obtain from the municipalities with minimal or no cost. Unfortunately, municipalities have found that gathering load data information from the utilities can be difficult. Therefore we recommend that the legislation be amended to require the utilities to provide a hard copy and an electronic format of load information.

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 Ratepayer Advocate believes that some of the government aggregation sections of the Act are cumbersome and overly complex for implementation by both the municipalities and third party suppliers who may have an interest in aggregating. That is why it is so important for the government aggregation sections of the Act be revised at this juncture. The government aggregation provision must be clear and concise -- protecting the interests of consumers but not over- regulating to the point where there are barriers to competition that may artificially raise the prices of energy.

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. Consumers who have to make individual choices without information, experience and market power may well be left behind. Amendments to the Act will go a long way to bring the benefits of competition to your constituents.

Thank you for the opportunity to speak here this afternoon.

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Footnotes

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