New Jersey Learns From Other States On Electric Deregulation
By Bair S Walker , Senior Writer
On Aug. 1, New Jersey became one of a handful of states to begin implementing electric utility deregulation. Before opening their borders to competition, officials in the Garden State studied how California, Massachusetts, Pennsylvania and Rhode Island implemented deregulation, then sought to replicate what worked.
They didn't have to look far to find things worth copying. New Jersey officials saw how power marketers were interested in challenging longstanding utilities in neighboring Pennsylvania, which officially ushered in competition in January.
On the other hand, the apathy that power marketers showed after California deregulated in 1998 was something New Jersey hoped to avoid, "says Mally Becker with the New Jersey Division of Ratepayer Advocate, the agency overseeing deregulation.
Officials concluded that California had set its benchmark electricity price too low to encourage competition, says Becker. Pennsylvania, on the other hand, established a kilowatt-per-hour price that power marketing companies believed had profit-making potential.
New Jersey set its deregulation benchmark price for electricity at 5.3 cents per kilowatt hour, about half the 10.5 cents per kilowatt hour consumers in the state are used to paying.
Even so, the new "price is high enough, based on what I'm hearing from power marketers, for them to feel there's going to be a market" in New Jersey," says Matthew Brown, energy expert with the National Conference of State Legislatures in Denver.
Looking to the north, New Jersey officials were impressed by how Massachusetts's deregulation program made it easy for consumers to buy power en masse, leading to a cheaper "bulk" rate for electricity. New Jersey not only copied this process, known as aggregation, but sought to fine-tune it.
There was a concern that in Massachusetts, the benefits of aggregation were primarily being enjoyed by businesses. New Jersey wanted residential consumers to get in on the action, too.
"We pushed legislation allowing towns to provide this service to residential customers," says Becker.
Pennsylvania staggered its deregulation introduction, allowing one third of all electric consumers to switch power suppliers at different dates. Rhode Island, Massachusetts and California had staggered introductions, too. New Jersey opted to let its 3.5 million electric consumers deregulate at the same time.
"We decided to skip phase-in and go directly to 100 percent competition," says Peter Yochum with the New Jersey Board of Public Utilities. "I think it works to everybody's advantage, because (phase-in) is an extra step and a time-consuming one that the board and everybody else have to get worked out.
"It's an extra step that you have to explain to all customers," says Yochum.
Perhaps the most important lesson New Jersey learned everywhere it looked is that deregulation takes a while to catch on with consumers. Massachusetts was an example.
"It was not exactly gangbusters up here," says Robert J. Ciolek, executive director of the Massachusetts Health and Educational Facilities Authority. Ciolek says his state, like California, set a benchmark electricity price too low to spur competition when it deregulated in 1998.
"I think it's going to be at least another 12 to 24 months before we have a robust market," says Ciolek, whose agency runs PowerOptions, a nonprofit energy purchaser group that lowers gas and electric bills by making bulk purchases.
New Jersey officials hope not to replicate a costly communications plan that ushered in deregulation in Massachusetts -- a $746,000 telephone hotline that wound up attracting so few calls that each call cost the state $51. New Jersey has a hotline too, but the folks who are implementing deregulation hope to do better job of encouraging consumers to use it.