The Star-Ledger

Electricity Prices Expected To Spike Over This Summer

The Star-Ledger — Thursday, February 17, 2005

Star-Ledger Staff

New Jersey residents will see their electric bills go up this summer because of an increase in wholesale prices for bulk power.

In an online auction held each winter, the state's four electric utilities this week paid significantly more for power than they did last year. The long-term contracts the companies locked up, valued at more than $4 billion in total, will translate into rate increases averaging 2.8 to 8 percent, depending on the utility.

Under state regulations, utilities profit only on the delivery of electricity, not on the commodity itself. The higher wholesale prices are passed along directly to consumers.

The higher wholesale prices are blamed on steep increases in the cost of natural gas, oil and coal, which fire about half of the power generation plants in the region. All the fuels have risen by more than 20 percent during the past year.

The increases in electric rates, to take effect June 1, would have been worse except that the latest auction contracts will account for only a portion of the total power supply. Long-term contracts the utilities purchased during the past two online auctions were based on significantly lower wholesale prices.

For residential customers of Public Service Electric & Gas, the state's largest electric utility with nearly 2 million customers, the steeper wholesale prices will mean the typical user will pay about $2 more each month, an increase of 2.8 percent.

The 66,000 customers of Rockland Electric will pay even more, with their monthly bills rising by about $8.52 on average, or 8 percent. Jersey Central Power & Light's 1 million customers will pay, on average, $4 more each month.

The four-day online power auction was conducted by the state Board of Public Utilities. The BPU introduced the system several years ago as the state moved toward a deregulated marketplace for electric utilities.

The aim of the auction is to get the best possible rates for consumers. While rates have risen in recent years, the utilities have avoided potentially steeper price increases by purchasing huge quantities of power.

BPU president Jeanne Fox said the agency was happy with the results of the latest auction, given the rate at which fuel prices have risen.

"While crude oil and natural gas prices have increased by 30 and 25 percent, respectively, over the last year, the auction provides a method of meeting our electric needs at the lowest possible prices for our businesses and homes," Fox said in a statement issued by the BPU. "While we have been able to keep increases to a minimum through the auction, customers can see even greater savings by using energy-efficient practices."

But for consumers, who have seen their bills rise steadily since the state lifted a cap on rates in 2003, it means yet another increase.

"In general, it has been just bad news for consumers since the state lifted the cap," said Ev Liebman, program director for New Jersey Citizen Action.

Others said the auction process has helped prevent what otherwise might have been even steeper price spikes.

"It helps hold the price down," said Roger Schwarz, a lobbyist for the Mid-Atlantic Power Suppliers Association, an industry trade group. "The way the board has structured the auction isolates the consumer from the true current cost of electricity."

In the auction, which ended Tuesday, 25 power suppliers offered contracts to supply roughly one-third of the electricity the utilities will need for their residential and small commercial customers over the next three years, beginning June 1. There were seven winning bidders, including a nonregulated affiliate of PSE&G, PSEG Energy Resources and Trade. Both companies are subsidiaries of Newark-based Public Service Enterprise Group.

In last year's auction, three of the four utilities -- with Conectiv being the exception -- were able to secure prices below those of the previous year. Since the contracts are for three years, last year's prices helped mitigate the rate increases this year, officials said.

"This is excellent news for consumers," said Frederick Lark, vice president for business analysis for PSE&G. "This goes a long way to showing the three-year approach helps bring stability for consumers."

Besides the auction for residential and small commercial customers, the utilities purchased power for about 2,000 larger industrial customers in a separate auction held simultaneously. While reflecting only a small piece of total energy costs, the prices obtained in the auction could lead to a slight decrease in bills for industrial customers, officials said.

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