Annual Electricity Auction Helps Determine Rates Charged by NJ Utilities

For the past four years, consumers and many businesses in New Jersey have enjoyed a rare occurrence -- a drop in the price of the electricity delivered to their homes from power plants around the region.

Might the trend continue? More will be known by the end of next week when the state Board of Public Utilities holds its annual online auction to purchase most of the electricity needed to power millions of New Jersey homes and businesses.

The results of the annual auction play a big role in determining whether electricity prices fall or rise each June in a state saddled with some of the highest energy costs in the nation.

But in the increasingly complex energy market, the auction is not the only factor: Transmission prices continue to rise and the state has increased the amount of electricity that power suppliers are required to buy from solar-energy systems, which costs more than electricity produced from more conventional power sources. Those and other factors can wipe out any savings achieved in the auction.

The auction typically involves the expenditure of more than $7 billion in ratepayer funds, although that amount may drop given the number of customers who have switched in the last year.

For the most part, state officials and industry executives were reluctant to predict the outcome of this year’s auction, but the general consensus was there should not be a drastic change in consumer prices, given the continued relatively low cost of natural gas.

‘’I don’t think there will be any major swings,’’ said Jay Kooper, the New Jersey chairman of the Retail Energy Suppliers Association, a group representing power suppliers who try to offer customers cheaper electricity than that supplied by the state’s four electric utilities.

With the steep drop in natural-gas prices, Kooper’s members have been much more successful in luring customers away from the state’s utilities, which buy the power they need to supply their customers in bulk in the annual auction held by the BPU. The cost of generating that electricity generally amounts to about two-thirds of a customer’s bill, with most of the rest of the cost tied to the expense of delivering the power over a utility’s transmission and distribution lines.

Natural-gas prices are still historically low, but they have bumped up a bit since last year, according to Tancred Lidderdale, a senior analyst at the Energy Information Administration, an arm of the U.S. Energy Department.

“Natural gas prices are still low, but they are not as low as last year,’’ Lidderdale said, noting that the price of the fuel, which is largely used to power generating stations in the region, was about $2.40 last January in one sector; prices were running at about $3.29 in future contracts in the same sector this month.

The price differential should not have a big impact on the New Jersey auction because of the way state regulators have structured it. Last year, prices for electricity purchased from the power suppliers fell from 1.1 percent to as much as 6.4 percent, depending upon the utility supplying the electricity.

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