The Star-Ledger

Paying The Price For Electricity Deregulation

The Star-Ledger — Sunday, July 13, 2003

EDITORIAL

In 1999, legislators and then-Gov. Christie Whitman promised that electricity deregulation would lower prices, increase competition and bring real choice to consumers.

New Jersey then had the fifth-highest electric rates in the nation, almost 49 percent above the national average. Our rates were a bit lower than those in New York and Connecticut, but quite a bit higher than Pennsylvania's and Delaware's.

Four years later, the Garden State has America's 11th-highest electric rates, almost 32 percent above the national average. Rates here are still lower than those in New York and Connecticut, still much higher than the charges in Delaware and Pennsylvania. Most customers have no practical choice about where to buy their electricity. And bills will go up sharply as of August 1, when mandatory rate caps are lifted.

Electric deregulation in New Jersey has not lived up to the lofty promises of 1999, and shows no signs of doing so for residential and small business customers, those with the least clout in the market. Fundamental flaws in the law will force more than 2 million customers to pay back almost $1 billion they saved on power in the past few years – with interest.

If electricity deregulation has been a promise unfulfilled, it has not been a disaster. New Jersey has had no rolling blackouts idling factories, silencing air conditioners and shutting down traffic lights, as California experienced. Electric bills haven't spiked up and down, as they did in California and New York.

But avoiding California-style mistakes is not good enough. New Jersey electric customers deserve more than mediocrity.

The state and the Board of Public Utilities must step up efforts to promote energy efficiency and conservation, for they offer the small consumer the surest and quickest route to lower bills. The BPU must aggressively look for ways to bring more power companies into the market so numerous suppliers vie for the average homeowner's business, the way phone companies chase long- distance sign-ups. And the board must scrutinize the decisions of the state's utilities, so that stockholders – not consumers – bear the cost if corporate business mistakes have contributed to higher rates.

The costs of deregulation's rate cuts are coming back to zap customers. The BPU just approved a 15.1 percent rate hike for Public Service Electric & Gas residential electricity customers. Customers of Jersey Central Power & Light could see an 11.5 percent increase. Rockland Electric and Connectiv want to raise their bills as much as 25 and 16 percent, respectively. The BPU will rule on their proposals in the next few weeks.

What happened to lower prices? We had them for four years, thanks to artificial discounts of up to almost 14 percent ordered by the deregulation law. But while the retail charge for power was capped, the wholesale cost was zooming up, thanks in large part to rapidly increasing prices for natural gas, the premier fuel for electric power plants.

Utilities will not eat the difference between the high wholesale and the low retail price. They get it back starting Aug. 1. They say they are owed almost $1 billion, some $600-plus million of it to JCP&L alone. Including interest.

There is legitimate argument over the reasonableness of those charges. Consumer advocates say Jersey Central and some other companies, which sold off generating plants as part of deregulation, failed to get the best deals when they bought power over the past four years since they knew they would get their money back anyway. The utilities insist they acted properly.

This is a battle of the green- eyeshade crowd, with accountants for each side poring over contracts and financial documents. The auditors at the BPU should give the benefit of the doubt to consumers, holding the utilities to the minimum recovery.

The artificial discounts of the past four years had another consequence. They gave outside suppliers no incentive to look for business in New Jersey because they could not charge the discounted price and make a profit.

Instead of having dozens of outside companies reaching out to homeowners for their electric business, there is one, Green Mountain Energy. It sells environment-friendly power from solar and other clean-energy sources that costs more than power from traditional, dirtier utilities. Of 3.1 million residential customers, only 1,800 have switched suppliers.

The BPU has taken steps to boost competition on the wholesale level. The board holds giant auctions each year at which suppliers across the country bid on the power needs for PSE&G and all the other New Jersey utilities. And Gov. James E. McGreevey has signed a law designed to make it easier for municipalities to form their own bulk buying groups.

It may be hard for towns or counties to get better prices than the BPU's statewide auction, but the idea is worth investigating. In the meantime, the BPU must continue looking for creative ways to spur competition. As computer and other technology advances, there may be opportunities to vary billing for small users by the hour, a strategy now being used with big industries to shift electric consumption to lower-cost times.

The most practical move for homeowners may be to just use less electricity. Energy conservation measures, from replacing regular light bulbs with high-efficiency fluorescent bulbs to buying less power- hungry air conditioners, could save consumers 10 percent or more on their monthly bills.

Conservation and efficiency programs over the past two years have spent $180 million and saved an estimated $2 billion in energy costs. The BPU has promised stepped-up education and other efforts, including offering "one-stop" access to conservation information and rebate programs. These are vital initiatives and should be pursued aggressively.

The Legislature can help. Assemblywoman Bonnie Watson Coleman (D-Mercer) has introduced legislation that would require improved energy efficiency for a range of mundane products, from commercial clothes washers to traffic signals. This would be a logical first step to reducing demand, and costs, statewide. Legislators should approve the measure when they return in November.

None of these steps will bring us the free-market nirvana that electricity deregulation proponents promised. But with hard work, the BPU and the Legislature can bring the reality of deregulation closer to the ideal.

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