RESA: Future of New Jersey Retail Mass Market "Bleak," Absent Changes

"[T]he future state of New Jersey's retail electric market for BGS-FP [Basic Generation Service-Fixed Price] customers, absent change, remains bleak," the Retail Energy Supply Association said in testimony to the BPU, citing the boom-bust cycle inherent in the three-year laddered default service structure.

It should be noted that this structure is largely similar to the structure being adopted in Ohio, which has been overly praised by retail suppliers of late. Indeed, unlike New Jersey, Ohio does not even have hourly pricing for any class of customer, not even in a territory that transitioned to auction-based rates nearly four years ago and has had approved three electric security plans, each of which presented the opportunity for incremental improvement in default service design (the FirstEnergy EDCs).

In New Jersey, RESA said that for customers below the hourly pricing threshold of 500 kW (which RESA seeks to lower to 300 kW), "present opportunities in the retail market, absent change, may dissipate in the future under a non-market reflective default service pricing structure."

"Unfortunately, the future state of New Jersey's retail electric market for BGS-FP customers, absent change, remains bleak. This is because of one fundamental and inescapable economic principle inherent in any competitive retail energy market – default service that is divorced from the underlying wholesale cost of electricity and does not contemporaneously reflect current market prices precludes the development of a robust sustainable competitive retail market," said Jay Kooper, New Jersey State Chairman of the Retail Energy Supply Association and the Director of Regulatory Affairs of Hess Corporation, who was testifying for RESA.

"In New Jersey, the current BGS-FP structure, based on a three-year blended average of the past three BGS auctions, is the least market-reflective fixed-price default service of the restructured states in the Northeast, creating a 'boom-bust' cycle of default service rates that are either higher or lower than current market prices for extended periods of time," Kooper said.

"[W]ith respect to the 54.6% of the small commercial (499 kW and lower) customer load that has now switched, that switching figure could be upended if and when the market prices relative to BGS-FP rates result in a 'bust' period if no changes are made to the current structure," Kooper said.

RESA specifically recommended that, starting with the next BGS auction, the New Jersey EDCs should supply one-third of the BGS-FP commercial customer load using 3-month contracts procured no more than 60 days prior to delivery, and supply one-third of the BGS-FP residential customer load using 12-month contracts procured no more than 60 days prior to delivery. The BGS-FP prices would then be adjusted quarterly for commercial customers and annually for residential customers for this portion of the BGS load.

Over the following two years as the remaining two-thirds of the BGS contracts currently in progress expire, they would be replaced with quarterly (commercial) or annual (residential) contracts until, at the end of this 3-year transition, 100% of the BGS load is served by either quarterly or annual contracts and BGS prices are reset on a concomitant quarterly or annual basis, RESA recommended.

Kooper said that this design, "removes what has stood as the largest significant barrier to more robust entry and long-term participation in New Jersey's retail electric market, over-reliance on long-term, highly artificial default service prices."