RESA: New Jersey Mass Market Retail Structure Not Built to Last

The retail market design in New Jersey for middle and mass market customers served under the fixed price Basic Generation Service (BGS-FP), "is not a retail market structure that is built to last," Jay Kooper, New Jersey State Chairman of the Retail Energy Supply Association, warned Friday during a legislative-style hearing concerning the annual review of BGS structure.

Kooper noted under a variety of metrics -- third party supplier market entry, variety of product offerings and level of customer switching – "the current state of the New Jersey retail electric market is good."

"Now, here is the bad news. Despite the current good state of New Jersey’s retail electric market, for BGS-FP customers this is not a retail market structure that is built to last. This is because of one fundamental economic principle inherent in any retail energy market – BGS or default service that is divorced from market-reflective prices and instead reliant on a highly artificial fixed price is an impenetrable barrier to sustaining a vibrant retail market structure," Kooper said.

"For the first decade of the New Jersey retail market, where the BGS-FP price was artificially lower than the market thanks to rising gas prices, New Jersey experienced a 'bust' period where BGS-FP customers had little to no access to choice of the electric product and service they wanted," Kooper noted.

To ensure the sustainability of the retail market, RESA recommended: (1) lowering the current BGS-CIEP threshold to 300 kW for the next BGS auction and establishing a "glide-path" to progressively lower the threshold in future auctions; (2) requiring interval meters for customers above 300 kW; and (3) transitioning in an orderly and progressive manner the laddered-3-year BGS-FP procurement structure to a system of more frequent procurements that currently exist in neighboring restructured states.

"In the end, highly artificial default service prices serve only to protect customers from their ability to choose because of the barriers to choice they create. In the long run, these artificial prices also fail to protect customers from high prices as over time the default price catches up with, and at times exceeds, the market price," Kooper said.