State of New Jersey

STATE OF NEW JERSEY
Division of The Ratepayer Advocate
31 Clinton Street, 11th Fl
P. O. Box 46005
Newark, New JERSEY 07101


JAMES E. McGreevey
Governor

 

SEEMA M. SINGH, Esq.
Acting Director
and Ratepayer Advocate

 

ENERGY DEREGULATION AND AGGREGATION:
A STORY OF DOLLARS AND SENSE

NEW JERSEY LEAGUE OF MUNICIPALITIES
Atlantic City
November 21, 2002

Remarks by Seema M. Singh, Esq.
Ratepayer Advocate and Public Advocate-designate

Good Morning honored guests, colleagues and friends. I am Seema M. Singh, the Ratepayer Advocate and Public Advocate-Designate for the State of New Jersey. I am most pleased to comment on my perspectives on energy deregulation and the importance of creating energy aggregation and consumer protections that benefit New Jersey residents, local governments, municipal services, and small businesses by stimulating affordable energy rates for energy services.

Over the past three years in New Jersey, the energy industry has been evolving from a fully regulated monopoly system into a deregulated market for the generation and production of electricity. As the state agency that represents the "public interest" on utility matters, the Division of the Ratepayer Advocate took the lead in advocating municipal aggregation when the New Jersey Legislature began debating enactment of the Electric Discount and Energy Competition Act (EDECA), finally adopted in 1999. As we understand it, the intent of the energy restructuring legislation was to place New Jersey in an improved competitive position in regional, national and international markets, and to encourage competition among energy suppliers thereby achieving lower rates and better services for residential, governmental and business customers.

It continues to be our position that consumers can more effectively enjoy the benefits of energy deregulation and competition if they are able to take advantage of private and government energy aggregation. We strongly believe that energy aggregation can provide opportunities for consumers working through their local town and government to gain purchasing power in New Jersey’s marketplace and by this improved market position can reap the benefits of competition and real choice. In several other states that I will discuss later, aggregation has been the only feasible way for energy restructuring to benefit residential consumers and small businesses.

In the early years when energy restructuring was first being considered by sTakeholders and state and local legislators, the Division of the Ratepayer undertook an extensive review and analysis of the issues affecting municipal aggregation. In fact, Ratepayer Advocate staff, in conjunction with the League of Municipalities, prepared an extensive "Manual for Government Aggregators" which was distributed to every municipality. Major conferences were also organized and presentations on the subject were made by ratepayer advocate staff to local government officials and community organizations throughout the state explaining the advantages of aggregation and how municipalities might reap the benefits of energy restructuring.

what then is the current status of energy aggregation in New Jersey in 2002? Unfortunately, there are no active municipal aggregation programs available. In the three years since EDECA, energy deregulation has not worked as hoped. Efforts to bring benefits to the people and governmental institutions of the state through energy aggregation have not worked because of statutory impediments to the formation of aggregation programs. Certain requirements imposed by the statute on the process of government aggregation by municipalities and energy marketers have discouraged formation of programs. provisions of EDECA derailed aggregation in the state by failing to provide the proper mechanisms for the maintenance of sustainable aggregation programs.

Today, we should give a round of appreciative applause to Assemblyman Burzichelli and Senator Inverso for having the vision to introduce new legislation that will remove these barriers and will revise the process for governmental energy aggregation. in the past months, The Ratepayer Advocate has continued to work with the state Legislature, BPU President Jeanne Fox and Board staff, the League of Municipalities, and other interested groups on ways to introduce feasible aggregation programs for all the people of New Jersey. The revision of the government aggregation section of the EDECA is essential to making that aggregation a reality.

The most effective means of encouraging residential, governmental agencies and small business customers to participate in a competitive electric market is to allow them to pool their energy purchases through their local governments. This process offers customers greater buying power and opportunity for reducing their costs. Suppliers also benefit from government aggregation because, from their viewpoint, the cost of educating small consumers to motivate them to switch and also collecting all relevant consumer data can be too expensive for energy suppliers, making the decision to serve small customers less appealing to them. The Ratepayer Advocate has repeatedly stated that residential and small commercial customers cannot realize benefits from the new market structure because they do not have a load profile or energy usage pattern that is attractive to energy suppliers.

The Ratepayer Advocate, working closely with the Board of Public Utilities, recently drafted recommendations for amendments to the EDECA legislation revising the process for governmental energy aggregation to make it more workable. With these amendments, aggregation can increase the efficiency and competitiveness of New Jersey’s overall energy marketplace.

The Ratepayer Advocate’s goal is to reshape energy restructuring so that municipalities and consumers gain the potential benefits that energy restructuring promised to all consumers. at the same time We seek ways to make the process more effective for consumers, we support maintaining the highest level of consumer protection.

Government aggregation can successfully transform individual residential, small business, and municipal customers into potent buying groups. By pooling the demand of various individual customers with local businesses and the municipal energy load, New Jersey consumers will be able to command better deals, demand better service and save money. Under the Ratepayer Advocate’s proposed government aggregation model, the municipality assembles the buying group, solicits the bids, negotiates and selects an energy supplier based on the most advantageous proposal, considering price and other factors. The municipality entering into a written agreement with the selected supplier would then submit the agreement for review to the Board of Public Utilities and the Ratepayer Advocate. after the approval of the agreement, The municipality would then notify customers in writing of their right to "opt out" of participation in the proposed government energy aggregation program. The chosen energy supplier then contracts with members of the buying pool aggregate, who are responsible for their own individual bills. The supplier benefits by obtaining a large, stable energy load; the customers benefit by getting a better combination of price and service than they could have achieved on their own.

The Ratepayer Advocate strongly supports the shift to "Opt-out" aggregation programs, which require constituents of a municipality to affirmatively decline to participate in the energy aggregation program. that means that Under the "opt-out" program, the governing body of a municipality or county, upon passing an aggregation resolution or ordinance, will automatically include all residents in the program unless they individually indicate that they would not like to participate.

"Opt-Out" programs in other states have proven to be successful. Through such programs, these states have provided their residents with the opportunity to be represented collectively through aggregation and have saved on their utility bills. These examples should be considered when you make your decisions to implement effective aggregation programs and to help explain the benefits of municipal aggregation for your constituents and town residents.

Massachusetts, Ohio and Rhode Island have all enacted laws that establish municipal aggregation providing customers access for the first time to competitively determined electricity prices. Opt-out aggregation has given the residents of those states, discounts and savings ranging from 11 to 22 percent, or between $3.50 to $7 per month or $42 to $84 per year for an average customer. In addition, customers have received offers of "green power" designed to support both existing renewable energy facilities and new facilities.

Massachusetts was the first state to put opt-out aggregation provisions into its electric industry restructuring statute. By mid 2002, through a pilot project which began for the state’s default supply customers, municipal aggregation proved itself. In Massachusetts, all customers in the aggregated groups have benefited, including low-income customers.

The success of aggregation is also affected by regulated retail prices. for example, Northern Ohio has experienced the greatest interest in aggregation by suppliers due to high prices there. The rest of the state, where prices are lower, has proven less interesting to suppliers. However, one of the major benefits of Ohio’s aggregation program efforts are that any state or local government entity can benefit from economies of scale by joining the aggregation group simply by paying a fee which entitles them to the aggregations group’s expertise and negotiating power. Cities like Parma, Ohio have chosen to pay this fee enabling them to buy the expertise necessary to negotiate a power supply agreement.

The Ratepayer Advocate also supports successful "opt-out" aggregation programs that are free from lengthy and burdensome processes which discourage participation. Constraints on the ability of consumers to act through their local governments should not be more burdensome than those placed on private aggregators. Unnecessary barriers to aggregation are being reviewed by my office so convenient energy bill savings and protections can be made available to New Jersey’s residential consumers. As an advocate for consumers, we oppose difficult and convoluted governmental processes which frustrate the public. As we have learned from the experience in new jersey and elsewhere, Excessively lengthy review processes will render municipal aggregation impractical.

The Division of the Ratepayer Advocate represents all state utility customers in New Jersey. our office has a broad and unique mandate. A special focus of my responsibilities, are the interests of New Jersey’s most vulnerable utility customers, the elderly, the disabled, and the low-income residents of the state. For many of these people, the Ratepayer Advocate is their only voice in utility proceedings. My office is also committed to ensuring that the benefits of energy aggregation reach all municipalities and their residents and services.

Establishing an effective framework for municipalities to create aggregation programs requires a special and scrupulous focus on consumer protections. fairness and equity for all the people of the state must be a priority as we go forward to make aggregation possible.

In the public interest, consumer protection safeguards must be part of the municipal aggregation process. Energy suppliers must be subject to reasonable standards of service and made responsible for and to the customers they serve. Therefore, appropriate rules and standards must remain a part of the municipal aggregation statue.

Finally, the Ratepayer Advocate has found that consumer education is an essential form of consumer protection. Local education campaigns are essential for New Jersey customers to learn about and achieve meaningful choices. Customers must be able to understand their electricity options, including price, generation resource mix, energy efficiency and renewable energy programs, products and services being offered.

We also support a special focus when designing aggregation programs, on educating traditionally underserved communities, including low-income, and elderly populations, so that all New Jersey customers can exercise meaningful, cost saving choices. Community groups, volunteers, local officials and essential grassroots and social service agencies should be involved in education campaigns and consumer outreach efforts. Consumer protection means that the least powerful customers have the same opportunity to make informed decisions regarding their gas and electric services, as the most powerful industrial customers have.

In the coming years, as we work to together to ensure that competition delivers benefits to all consumers, the Ratepayer Advocate will continue to take an active role in establishing a solid framework for energy aggregation programs – one that maintains adequate regulatory oversight while ensuring that energy services are reliable, affordable and at safe service levels. Municipal aggregation programs must both benefit and protect ratepayers.

One final word: the dedicated staff of the Ratepayer Advocate is central to creating an innovative municipal aggregation program that will increase resources and benefits for New Jersey consumers. I am confident that a partnership that includes all stakeholders can achieve a significant transformation of the electric and gas industries that will usher in true competition and greater benefits and options for consumers.

I look forward to continuing to work with the Legislatures, League of Municipalities, and Board of Public Utilities to make energy aggregation work in New Jersey. Thank you. i look forward to having an opportunity to greet you personally when this meeting adjourns.


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