NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER
ADVOCATES
ANNUAL MEETING
"MUNICIPAL AGGREGATION: WHAT KILLS IT ... WHAT
SAVES IT"
PANEL DISCUSSION
November 12, 2001
Philadelphia, PA
Remarks of
Blossom A. Peretz, Esq.,
Director
New Jersey Division of the Ratepayer Advocate
Good morning. It is a pleasure to be here today to offer you the New Jersey perspective on municipal aggregation. Let me begin by way of a little background. As the state agency that represents consumers on utility matters, the Division of the Ratepayer Advocate took the lead in advocating municipal aggregation when the New Jersey Legislature was debating enactment of our Electric Discount and Energy Competition Act ("EDECA") in 1999. This was the legislation that deregulated the energy market and was intended to bring energy choice to New Jersey ratepayers.
It was -- and continues to be -- our position that consumers will never see the benefits of energy deregulation and competition if they are not able to take advantage of private or, more importantly, government aggregation. We believe -- and I am sure many in this room here today share this view -- that government aggregation offers an essential opportunity for consumers to act through their local government to gain power in the marketplace, and indeed, to reap the benefits of competition and choice. As is being demonstrated in several other states -- some of which are represented here today, including on this panel -- aggregation may be the only viable way in which residents and small businesses can secure the potential benefits of competition -- and choice -- in electricity and natural gas supply markets.
Does it surprise you to hear that at the time of the debate over EDECA legislation two years ago, municipal aggregation was the most hotly contested political issue during the legislative hearings on energy deregulation? In fact, energy deregulation almost failed in New Jersey because municipal aggregation was so contentious. The electric utilities in New Jersey opposed municipal aggregation more than any other aspect of the energy deregulation legislation.
EDECA mandated the start of electric competition in August 1999. A 5% rate reduction was implemented at that time. Customer choice was not put in place by the Board of Public Utilities until two months later, in November 1999 -- two years ago this month. The Division of the Ratepayer Advocate launched an extensive consumer education program about the benefits of energy choice in general and municipal aggregation in particular. We prepared an exhaustive Manual for Government Aggregators in conjunction with the New Jersey League of Municipalities. We sponsored two major conferences and visited legislators and made many presentations to local government officials, senior citizen communities and organizations such as AARP and the League of Women Voters to explain the advantages of aggregation and how municipalities can reap the benefits of energy choice.
How are we doing with energy deregulation? According to the most recent figures from the state Board of Public Utilities -- our PUC -- as of October 31, only 8,131 residential electric customers out of more than 3.1 million had switched to a third party supplier. That is down from the 30,000 who had switched as of this past May. Obviously, we have fallen far short of our goals in New Jersey. This is an unfortunate record for not only the richest state in terms of median income but also the most densely populated state in the union. Of course, the primary reason was the sudden spike in the wholesale energy marketplace, which swept competitive marketers out of New Jersey.
Would government aggregation have helped? In the two years since the enactment of EDECA, we have come to realize that our hope for bringing benefits for consumers through aggregation could not work because certain requirements imposed by the statute on municipalities and energy marketers were significant impediments to government aggregation efforts.
The statute put in place two routes for municipal aggregation: the Opt-In procedure and what was called the Opt-out. Neither was easily navigated.
Under the Opt-in procedure, a government aggregator solicits bids from suppliers through an RFP and enters into a contract with the winning bidder. The affirmative and voluntary written authorization from township residents who wish to participate in the program must be obtained.
The alternate Opt-out procedure requires a municipality to adopt an ordinance indicating its intent to solicit bids for electric and gas supply service for those residential ratepayers who agree to participate. The ordinance must be approved by a town council vote of a majority plus one.
Then, within 15 days of the adoption of the ordinance, the municipality notifies its residents of their individual right to decline to participate. They have 30 days to respond in writing that they do not want to participate.
Next, the municipality must determine the number and identity of the residents who did not affirmatively decline to participate.
After that, the municipality solicits public bids from a licensed electric power supplier or licensed gas supplier -- either separately or bundled. After entering into a contract with the supplier, the contract is submitted to the Board of Public Utilities, which has 30 days to deem it complete -- or return it to the municipality for additional information. If it is deemed complete, the contract then goes to the Ratepayer Advocate, which has 45 days to approve, modify or reject it. If approved, the contract goes back to the Board, which has 60 days to approve, reject or modify. Then, when the contract is finally approved, the law requires "the affirmative and voluntary written consent to participate in the government energy aggregation program of any residential customer within the municipality who did not initially affirmatively decline to be part of a government aggregation program."
In other words, the Opt-out provision morphs into an Opt-in provision. The law is so poorly written that it does not clearly state whether it is the municipality or the energy supplier which obtains the final written approval -- or "wet signature" approval -- from municipal residents.
This extra step of obtaining wet signatures at the tail-end of the process is a drastic and substantive change from a true "opt-out" government aggregation used in other states. Marketers told us that one of the key reasons municipal aggregation did not work in New Jersey was the extra time and expense required to obtain wet signatures at the end of the opt-out process. Marketers couldn't do it over the phone or use the Internet. They had to go door-to-door to get the signatures. It is easier to get on the ballot to run for town council in New Jersey than it is to aggregate a municipality for energy choice. The modified opt-out provision was actually an opt-in provision in disguise. It torpedoed municipal aggregation.
To capture the same savings and achieve the same successes through aggregation as have communities in Massachusetts and Ohio, the Ratepayer Advocate believes that the first step is to amend the government aggregation sections of EDECA to streamline the process for the government aggregators while maintaining the highest level of consumer protection.
Specific changes to the government aggregation section of the New Jersey Act that we have recommended include true opt-out, which requires the constituents 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 eases the process of obtaining enough participants to make the program economical.
Another problem with EDECA was that the statute set onerous timelines. The regulations for the opt-in government aggregation program set an administrative schedule that took 22 weeks while the modified opt-out schedule lasted 33 weeks. It would take local governments six months to implement opt-in aggregation program while the administrative schedule set the time for local governments to implement the modified opt-out program at eight to nine months.
These mandated time-lines -- which included lengthy review periods as I listed -- render municipal aggregation impractical. Since the process was stretched out so long, marketers could not enter bids based on market prices that were so far off in the future. We all recognize the volatility of today's energy marketplace. The aggregation requirements of EDECA also mandates such extra steps as approval of the energy contracts by the Board of Public Utilities, as well as the Division of the Ratepayer Advocate.
Another impediment was the difficulty of obtaining 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. For example, the utilities should be required to provide government aggregators -- the municipal officials aggregating their town -- with a list of names and addresses of all energy customers who receive services within the boundaries of the municipality so that officials have the means to notify their constituents of their affirmative right to decline participation. Without the names and addresses of energy customers, municipal officials cannot either notify all consumers in their community of the aggregation program or identify the customers who did not opt-out as the officials 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. And, in one glaring example, the utility refused to provide the list of ratepayers, claiming privacy concerns. Tenants of apartments are not on the local property tax roles in New Jersey, and no complete list was available.
Load profile information is another category of information that the government aggregator needs in order 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 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 municipal officials are provided enough information in their bid specification for the suppliers to make a meaningful bid. Unfortunately, municipalities found that gathering load data information from the utilities can be difficult, and the legislators did not mandate disclosure. The Ratepayer Advocate is recommending that the legislation be amended to require the utilities to provide a hard copy and an electronic format of load information.
To graphically illustrate the New Jersey story, let me briefly tell you a tale of two cities.
In July 1997, Monroe Township, a mid-sized retirement community in central New Jersey, launched a one-year energy aggregation Pilot Program with an all-in/opt-out provision. Many elderly on a fixed income live there in all-electric homes. What better place to aggregate? And it was a tremendous success: 86% of the town's 12,500 residential electric customers -- a total of 9,680 people -- chose to participate, while the remainder exercised the opt-out provision. Another 850 commercial and industrial entities chose to participate. The program resulted in a 20% savings for residential customers on the energy only portion of their bills, resulting in an overall 5% savings.
The next year, 1998, when it came time to renew the Pilot Program for a second year, the incumbent utility reduced the shopping credit to 2.4 cents per kilowatt hour from 2.7 cents per kWh. The energy supplier could not supply energy at the reduced rate. Monroe Township, claiming that the incumbent was reducing the credit to stifle competition, sought assistance from the Board of Public Utilities. My office intervened, and the program was extended for 3 months until the start of energy competition. The Pilot Program encountered other obstacles. The incumbent utility also refused to provide the municipality with its list of customers, claiming privacy rights. Because of these obstacles, the Pilot Program was not renewed after the three month extension.
A year later, in July 1999, after the passage of EDECA, the Village of Ridgewood, located in Bergen County, our northernmost and most affluent county, led 14 other surrounding municipalities into an association called Community Choice New Jersey, the largest electric aggregation project in the state. The cooperative effort had the potential to benefit 250,000 residents and businesses by aggregating as much as 2.6 billion kilowatt hours of electricity worth more than $300 million a year. The savings could have potentially been much larger than the 5% to 10% rate reduction mandated by EDECA, which was enacted the previous February.
What might have been a model aggregation success story was derailed by the onerous provisions of EDECA. Specifically, the modified opt-out, in which energy suppliers would have had to ring every doorbell to obtain the wet signature of residents wanting to join Community Choice New Jersey, would have been too expensive. Additionally, the lengthy time-lines to implement the program was another costly impediment that drove energy suppliers away. Ridgewood gave New Jersey a grand energy aggregation party -- and no one came. The bids went out. Nobody bid. Despite a lot of hard work by local officials, the program never got off the ground. No municipal official in New Jersey has tried to aggregate since.
The Division of the Ratepayer Advocate believes that after two years of working with EDECA, it has become apparent that changes must be made to make the Act "user friendly" for the municipalities entrusted with the task of aggregating their citizens. The Ratepayer Advocate opines that some of the government aggregation sections of EDECA 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 any legislation to 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.
Unfortunately, the government aggregation provisions in the EDECA undercut the ability of local governments to represent their constituencies. The legislation needs a comprehensive revision of at least four components:
1. Eliminate the written consent requirement for opt-in aggregation programs, so that residents can join up electronically or by telephone. [The wet signature requirement for individual choice for a third party supplier has been amended to permit Internet sign-up or third-party verification.]
2. For electric power suppliers enrolling consumers pursuant to an opt-out government aggregation contract, waive the wet signature opt-in requirement at the tail end of the process. Also, waive the requirement to provide a list of residents who did not participate.
3. Require each electric public utility to provide to municipalities, upon request, a list of customers within the municipality's jurisdiction. The list should include account codes and meter numbers, and should indicate which customers have selected a competitive electric power supplier. The legislation also should require the utility to transfer the list to the electric power supplier selected by the municipality to supply its aggregation program.
4. Eliminate the "one contract" limitation, which prevents a municipality from obtaining services from two or more suppliers. There will be many situations where multiple contracting can better meet the municipality's needs.
Deregulation is not succeeding as well as we had hoped. There are several states which have stopped plans to deregulate. Some are even reversing course -- while there are a handful that are moving forward to competition by means of aggregation.
Energy aggregation programs continue to grow in Ohio and Massachusetts. They are under consideration in communities from Virginia to California, where aggregation is also being considered as a means to alternative renewable energy sources. In New Jersey, legislation will soon be introduced to amend our aggregation section of the energy deregulation statute. Energy aggregation is moving from the state level to the national arena. It is no longer an issue just for state legislatures, but it has become the subject of proposed federal energy legislation before Congress. And, as an aside, legislation is under consideration in New Jersey to allow municipalities to aggregate to confront the high costs of cable television rates.
In New Jersey, we are at a cross-roads. We can either head back to regulation -- or we can continue forward on the road to deregulation. Personally, I take my lead from Abraham Lincoln, who once said, "I'm a slow walker, but I never walk back." I believe that aggregation is the path that will bring ratepayers the benefits of choice and competition. Thank you.
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The Division of the Ratepayer Advocate represents the interests of all utility consumers--residential, small business, commercial and industrial -- in New Jersey. The Ratepayer Advocate is a party in every proceeding in which New Jersey businesses and utilities seek changes in rates or services. The Ratepayer Advocate also participates on behalf of consumers in setting long-range energy, water and telecommunications policies that affect the delivery and costs of utility services. Visit the Ratepayer Advocate's website at www.rpa.state.nj.us.