REMARKS OF BLOSSOM A. PERETZ
DIRECTOR
NEW JERSEY DIVISION OF RATEPAYER ADVOCATE

LEAGUE OF WOMEN VOTERS
SEPTEMBER 22, 1999

Good evening. My name is Blossom Peretz and I am the Director of the Division of Ratepayer Advocate. Thank you for giving me the opportunity to speak about utility deregulation, an issue that will change the way in which communities and residents think about their utility services.

The recent passage of the Electric Discount and Energy Competition Act ( the "Act" ) on February 9, 1999 was a momentous occasion and marked the start of a new world where energy suppliers will "court" New Jersey energy customers in order to serve them. This means all New Jersey energy customers, most likely for the first time, are given the opportunity to choose an energy supplier based on factors like price and quality of service. As the Ratepayer Advocate, I am excited by the possibilities that this new act opens up for all ratepayers.

In August, you saw the first benefit from energy deregulation when you received your first five percent discount off your current electric bill.

And beginning in mid-fall, consumers will have the opportunity - but will not be required -- to choose a different supplier of electricity, or generation. By the end of 1999, all New Jersey consumers will also have the opportunity to choose their supplier of natural gas, with traditional utilities continuing to be responsible for transporting electricity and gas to customers’ homes and businesses. And thanks to the efforts of the Ratepayer Advocate and the municipalities, you and other League of Women Voters members will have the opportunity to bring additional savings to your town by working together in aggregating customers.

I spoke of "shopping" for energy. As the utility industries are deregulated, consumers will be able to pick a new electric or gas service provider for generating electricity or for supply of gas, or continue to stay with the incumbent utility. In the case of electric competition, about one-quarter to one-third of the bill will be affected, because only the generation portion is open to competition. The traditional utility will continue to be in charge of delivering the electricity or gas to the business or home.

In the near term, mandated reductions may protect electricity consumers from current high rates. In the long term, only a competitive market structure will provide the future assurance of lower energy rates. The Ratepayer Advocate specifically believes that governmental aggregation provides the greatest opportunity to achieve additional long-term rate reductions for county and municipal needs, businesses and residential customers.

I am here today to discuss how aggregation can provide consumers, and governmental entities with lower energy costs and improved service offerings. So what I would like to do is highlight a few of the most important issues that will help your efforts to cut your energy rates.

First, what do I mean by aggregation?

Aggregation means consolidating or pooling numerous individual purchases of gas and electricity into a single very large purchase, and thereby being able to purchase energy on favorable terms through the highly competitive markets. Aggregation is one facet of energy deregulation and basically permits someone other than the existing utility to perform the function of buying power at wholesale and redistributing it at retail: the power to buy power at competitive rates.

Government aggregation can occur in various ways. On the simplest level, the municipalities or the county can separately or together simply consolidate all of its own gas and electric accounts such as the street lights and the municipal or county buildings into a single account, stated on a single bill, craft a Request For Proposal ("RFP") and shop the wholesale market for the best available "total energy" deal. In so doing, it can look not only to the cost of power, but to the range of related services being offered by the power provider such as: What are the competing power suppliers offering in terms of conservation related services? What about load management programs? Are they willing to offer creative pricing and financing models?

Units of local government can band together -- counties, cities, towns, school districts; sewer and water districts; municipal hospitals -- and procure their energy related needs on a cooperative basis.

The municipality (or group of municipalities) or county (or group of counties) can act as a facilitator for all, or a number of its constituents. Under this model, the municipality or county puts out an RFP to purchase energy on behalf of committed or anticipated participants in the pool. In addition to the overriding general contract with the government entity each individual energy consumer will enter into an energy supply agreement leaving the governmental entity free from financial risk and day-to-day administrative tasks. An analogy for this sort of pooling occurs, for example, when voluntary organizations such as the Knights of Columbus, or the New Jersey Bar Association offer insurance coverage to their members through a preferred provider.

It must be remembered that aggregation, at whatever level, will only involve the energy portion of energy purchases, and that control over poles, wires and mains and rates for transmission and distribution service will remain with the local gas or electric utility, furnishing service under tariffs approved by the Board of Public Utilities.

You may wonder whether government aggregation is necessary. In other words, if private competition is so wonderful and efficient and if competitors are out there, why should local government become involved at all? First, when dealing with the county or municipality’s own electric costs, activism in terms of consolidating accounts and soliciting a single total energy solicitation is the only way to maximize the benefits of competition. As regards to the need for municipalities or counties to aggregate for small residential customers, my answer is that while there will be no shortage of competitors out there in the wholesale markets seeking the business of large retail users, the costs of going after small retail customers might prove to be prohibitive, particularly given the natural inertia for change, caution, and possible confusion of small customers. Municipal or county aggregation can, at once, significantly reduce the start-up marketing costs to the new entrants, and provide the necessary push and comfort level needed to spur small customers to break old habits.

You may also wonder how much trouble will this government aggregation cause, and will it be worth the trouble to the governing body?

First, once the models are created, aggregation need not be overly difficult or risky, particularly since the more technical aspects of aggregation can and should be handled by qualified technical experts. Regarding whether it will be worth this amount of trouble, although we must be realistic about the expected cost savings, I definitely think so. High energy costs are a burden to all ratepayers. Moreover, as I noted, the current relationship between ratepayers and the local utilities results from franchise agreements entered into many decades ago permitting utilities to use public streets and rights-of-way.

Putting together a solicitation for both the municipality or county’s own energy service needs, together with those of participating constituents, will, if nothing else, get the attention of the local utilities and its unregulated affiliates. Even if the end result is to have the local utility, as if it were, bid against itself to provide better service, the community still comes out ahead. In Monroe Township, 86 percent of the township’s 12,500 residents chose to participate in a pilot program to aggregate retail electric load. The experience of municipal aggregation in Peterborough, New Hampshire suggests that there will also be significant interest from major power marketers. Cost savings were about 15%, which is higher than what I would anticipate here. Nevertheless, just recently the 20 towns of Barnstable County, Massachusetts have announced that four power suppliers have underbid that state’s "standard offer" in response to an RFP to provide power and energy services to 180,000 customers. The Pennsylvania Energy Consortium is aggregating 242 school districts, 42 municipalities and 29 other non-profits. It expects to save its members $15 million this year.

Even if the aggregation merely represents the accounts of local government bodies, genuine cost savings will still be available. The city of Philadelphia was able to reduce its energy costs by over $5 million per year, primarily by parlaying competitive opportunities available to large customers in the area of fuel substitution and self-generation into large cost savings. In California, the Association of Bay Area Governments put out an RFP for 104 local governments in the San Francisco area to provide up to 30 megawatts of firm power for one year. The Rhode Island League of Cities and Towns is forming a similar purchase pool on behalf of its members. Moreover, aggregation, and the competitive options that come with competition might eventually offer qualitative benefits in addition to mere commodity cost savings, such as in conservation, high quality lighting, load management, and even fuel switching for municipalities and various metering and billing options or better customer services for the constituents.

The Role for the League of Women Voters

Municipalities and counties will need assistance in aggregating loads. Drafting solicitations, evaluating bids, and negotiating contracts requires expertise. Municipalities and counties may want to hire expert consultants and other legal advice. Our office is also there to assist and make this specialized know-how readily available to municipalities by sharing our own expertise. We have prepared a "Manual for Government Aggregators", copies of which I have brought with me tonight. It’s a "How To" book especially prepared for local government aggregation.

Being a smart consumer in the age of electric deregulation and telecommunications information and technology advances requires outreach for new information and new opportunities.

Smart consumers will be developing plans right now for investment in the new energy and telecommunications competitive environments.

Which brings me to my perception of the special need for the collective wisdom of the league of women voters.

This summer, you and your residents have seen the beginning of a neutral state-sponsored mass media campaign to increase awareness of the new energy choices all consumers will have. Even with state wide education campaign, consumer knowledge about buying energy does not yet exist.

Most residential and small business consumers routinely pay their monthly electric bill without much attention to their rates or their usage pattern. Indeed, recent research shows that most consumers don’t know their monthly or annual energy usage or the price paid per KWH on their utility bill.

In other words, your efforts in educating townspeople and businesses must prove to customers that it is worth their time and effort to understand a service they have long taken for granted.

Municipal officials and municipal political action groups like the League of Women Voters have certain advantages that can’t be matched by any mass media ad campaign or 30-second superbowl ad spot. Your constituents know you. They already depend upon you to understand issues that affect their daily life such as education and taxes and they expect you to provide them with accurate information about a host of community issues.

In a real way, analyzing energy choice is an extension of the services you already provide to constituents. In town meetings and local newspaper articles, I hope you will emphasize that fact to customers. You bring significant expertise to this process.

Consumers need neutral, unbiased information to function in a competitive marketplace. You can be a major source of that information. The League can prepare additional fact sheets and information for distribution in your towns.

Your task is an awesome one because you are not only educating consumers about restructuring generally but you are needed to educate your constituents about aggregation and what they will have to do to receive the benefits.

Your efforts at the local level are key.

What then are my suggestions for an effective municipal consumer education program?

First the municipality you live in must accumulate data about the energy use of its constituents and the municipal energy load. Gathering a load profile is absolutely essential for successful aggregation. Encourage your municipality to start doing that now and reach out to your town residential and commercial constituents to do the same. Awareness of current bills -- the amount of energy used - and the cost is the first step for a consumer education campaign.

Work with your municipality on a grass roots campaign. Help educate your own municipal employees. The switchboard operator or receptionist who answers the phone needs to know whether the town engineer, the town administrator or the mayor’s assistant is handling constituent inquiries about deregulation aggregation.

Work with your municipality to develop a consumer education program directed at educating consumers about the ability to choose an energy supplier. Encourage them to appoint a consumer education advisory panel to direct this operation. In terms of representation, consider enlisting the PTA’s and PTO’s, the Boards of Education, the Elks and Kiwanis Clubs, the churches and synagogues.

Prepare a fact sheet -- a short information guide - outlining energy deregulation and choice and outlining the process of aggregation and be prepared to answer questions. The Ratepayer Advocate will, of course, be there to assist your efforts.

Coordinate with the local newspaper editor or reporters -- the editor of the shoppers guides -- the high school newspapers and your local county and state officials to participate and prepare informational articles.

Make your information packets on choice and aggregation available at all public occasions (parades, fairs, PTA meetings, community events) -- and at libraries, the schools and the municipal building.

Ask local realtors to include information about aggregation for new residents.

Remember the students -- one of the best ways to educate parents is to provide their children with information to bring home.

Collaborate with your local cable company to establish a web site and to discuss opportunities to provide your constituents information about energy choice and aggregation through public access programming. Your cable company is there because your town awarded that company a franchise -- utilize this source for information.

The power of the electric discount and energy competition act is the ability of the consumer to choose energy services -- but to implement an aggregation plan-requires municipal grass roots education. State wide television and radio commercials will only spark awareness. Local municipal educators will turn awareness into action.

For more information about energy deregulation, your are invited to contact my office at 973-648-2690 or access our web site at http://www.njin.net/rpa. I look forward to answering your questions and to working with the League of Women Voters on all issues concerning deregulation. Next year I predict we will be talking about aggregating natural gas supply with electricity for all residential consumers, together with energy efficiency services, and thereafter, cable with telecommunications. On the horizon, we have the next step in the deregulation of the traditional monopoly utility structure -- known as convergence. Please stay tuned. There’s more to come.

I leave you with some quotes for today for support of the daunting community projects you are about to embark upon.

"Don’t judge each day by the harvest you reap, but by the seeds you plant" (Robert Louis Stevenson)

"Progress always involves risk; you can’t steal second base and keep your feet on first" (Frederick Wilcox) and finally,

"Never be afraid to try something new, remember amateurs built the ark. Professionals built the Titanic. (Anonymous)

Good luck -- the pot of gold is at the end of the rainbow for those who persevere.

Thank you.

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