The Star-Ledger

Modest Increases Seen For Electricity

Online auction blasted by consumer advocates

The Star-Ledger — Sunday, January 28, 2007

BY TOM JOHNSON
Star-Ledger Staff

As New Jersey's four utilities prepare to shop for electrical power, consumers are expected to be spared the double-digit increases in their bills they absorbed the previous year.

With the steady drop during the past several months in crude oil and natural gas prices, many energy experts are predicting only modest increases in customers' bills next June as a result of a series of online power auctions. The process began this past week, with Rockland Electric trying to acquire its power needs, and continues until early next month with the other three electric utilities.

That is little solace to consumer advocates who have repeatedly criticized the auction process, which was set up by the state after it broke up the electric monopolies the utilities enjoyed and lifted price caps on power generation costs. The result has been steadily rising electric bills, with the price of power, which accounts for a bit more than half of your monthly bill, jumping 91 percent during the past two years.

"We expect it to go up and we expect it to hurt," said Ev Liebman, program director for New Jersey Citizen Action, which has faulted the auction process be cause of its secretive nature. The process is conducted via the Internet and only open to a couple dozen bidders, the utilities and regulatory officials from the state Board of Public Utilities. "In this economy, any type of increase will hurt," Liebman said.

Two key factors are likely to determine just how much, if at all, bills will rise this summer, experts said. The positive news is natural gas and crude oil prices have significantly leveled off from the past two years, and those two commodities help drive the cost of power generation.

Offsetting those benefits, however, is the scope and design of the auction. The utilities will purchase about one-third of the power they need to supply their customers be ginning in June. The other supplies will come from long-term contracts they signed with power suppliers in the past two years.

The contracts they purchase during the next few weeks, however, will replace cheaper contracts from three years ago, when wholesale power prices were considerable less expensive.

"I expect the prices will increase again," said Steve Goldenberg, an attorney who represents large industrial and retail energy users. "It's going to be higher than the prices paid three years ago."

Here's how the auctions work: About two dozen power suppliers will bid to supply power in two separate online auctions to provide electricity to customers of the utilities during the next three years, be ginning in June. More than 6,100 megawatts of electricity is up for sale. One megawatt provides enough power to light about 800 homes.

Last year, with a slightly larger amount of power up for grabs, the New Jersey utilities spent $7 billion to purchase the supplies they need for 3.5 million customers. The utilities then deliver the power to customers at the contract rate and charge a delivery fee.

This will be the sixth year the utilities purchase their power sup plies in an auction, a system state officials have credited with keeping energy bills lower than they other wise would be the case. The auctions were designed to give customers the best possible prices by allowing the utilities to buy power in huge blocks at discounts.

To that end, it has helped avert the type of rate increases customers in neighboring states have experienced in the past year, when rates jumped 34 percent in Massa chusetts; 23 percent in Connecticut; and nearly 60 percent in Delaware. Most of those states, however, had caps on rates that were lifted as part of deregulation.

By comparison in New Jersey, last year's auction pushed up electric bills 12.5 percent for Atlantic City Electric; 12.4 percent for Jersey Central Power & Light; 13.7 percent for Public Service Electric & Gas; and 12 percent for Rockland Electric customers.

For the Mid-Atlantic region, the Energy Information Administration is predicting more modest increases in residential electric bills than customers had to pay in the past, according to Tyler Hodge, an economist with the agency. For 2007, the agency projects residential bills will rise 3.1 percent, and then 0.9 percent the following year, far less than the 7 percent jump residents experienced in 2006, Hodge said.

Some experts say prices may even drop below those projections, given the precipitous drop in crude oil and natural gas prices.

David Brown, a vice president of NUS Consulting Group, which helps businesses reduce utility expenses, said he expects to see a small drop in power prices, or at most, a "minuscule" increase be cause of the fall in crude oil and natural gas prices.

Roger Schwarz, a lawyer who represents the Retail Energy Supply Association, doesn't think consumers will pay less, but said prices will only be slightly higher than last year. The state of Maryland is conducting its own power auction, Schwarz said, and his clients are telling him prices are not as high as they anticipated going into the process.

Copyright 2007 The Star-Ledger

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