New Jersey Ratepayer Advocate Blossom Peretz, Cities Face Off with Regulators Over "Community Choice"

The New Jersey Board of Public Utilities (BPU) has released draft electric restructuring legislation which would effectively squash an emerging "Community Choice" movement among local communities to join together to purchase electricity collectively in the deregulated industry. The BPU proposal, which severely limits Community Choice, is drawing criticism among communities, and is opposed by Community Choice advocate, New Jersey Ratepayer Advocate Blossom Peretz, who hopes that New Jersey will improve on the "Community Choice" law passed in Massachusetts last November by expanding rather than restricting municipal aggregation powers.

These hopes will be disappointed if the state's regulators have their way. The BPU legislation would prohibit Community Choice, or "opt-out" aggregation efforts by local governments which automatically include residents and businesses who do not choose to remain with their old utility or seek a new provider on their own. The opt-out power of municipal aggregation, which enables whole communities to combine their buying power in the deregulated electric market, is emerging as the critical economic factor determining whether the vast majority of residents and businesses will have access to competitive suppliers.

New Jersey Ratepayer Advocate Blossom Peretz, among the nation's leading advocates of Community Choice, is calling for an even stronger pro-community model than the law enacted in Massachusetts last year. In a speech before the Manchester Township, Peretz said not only that she favors the "opt out" approach to municipal aggregation, but that cities should be able to limit switching "to reduce risks and bargain effectively for those consumers who remain aggregated. It is the municipality, acting on behalf of its constituents, which must make the final decision," she said.

In contrast, the BPA proposal would require communities to sign on residents and businesses individually before going to market, forcing local governments to spend scant public resources on marketing. The legislation places new additional restrictions on municipal aggregation that discriminate against residents and small businesses, by prohibiting local governments from including small consumers in their contracts for city facilities, barring residents from being included in contracts with businesses, and even disallowing contracts between large and small businesses.

"A third of the bill looks like it was designed to prevent municipal aggregation," said Thomas Kennedy, an energy attorney who is critical of the proposal. "This bill is not a reform or freeing up of customer choice but a binding of the hands of municipalities and their residents so they cannot make their own free choice of suppliers."

The BPU proposal would crush an emerging movement among municipalities in New Jersey to aggregate electricity on behalf of residents and businesses in the deregulated industry. In July, 1997, the Board of Public utilities approved an "opt-out" municipal aggregation pilot project led by the Monroe Township, a town of 25,000 people, with strong backing from the township's retirement communities. Frederick Brunner, Director of Public Facilities/Utilities for the Township, said that the opt-out structure of the pilot was essential to its success, and worried that a hostile statute would hobble efforts to aggregate. "The town just can't afford the cost involved in signing up people individually, and you can't count on power suppliers to do the marketing for you; basically it erodes all your savings."

Brunner says that with the opt-out structure in place, the township issued a Request for Proposals and secured 5% in savings in energy costs from Delaware-based Connectiv Energy, whose one year contract to serve all but 14% of Monroe's residents and businesses began on September 15, 1997. "We offered our people three options; to stay with their old utility (GPU), to find their own provider, or to go with the city. Eighty people said they would shop on their own but couldn't find a supplier, so they defaulted to GPU." All in all, thirteen percent, mostly residential customers, opted to stay with GPU. "Opt out was key to our savings," he said.

While Connectiv offered 6% savings across the board, Brunner said the township's main purpose was to bring savings to residential households, 5000 of which have high cost electric heat. "We chose a rate design to give residents up to twenty percent off energy and reduced the commercial energy rates by eight percent; industrial customers got a two to three percent cut," he said. In March, the Monroe Township Council passed a resolution announcing that its "opt-out"-based pilot project "has proven to be a monumental success," with 86% of the townships residential customers participating, and asked that the opt-out structure be preserved in the state's restructuring law.

With dramatic success in the Monroe Township, other municipalities in the state are catching on. "Municipal aggregation will be a way in which you as a government leader can help the residents of your town save money on energy," announced the New Jersey State League of Municipalities in preparation for an April 21 seminar. "By acting as an agent, you can negotiate for your constituents and select the retail energy supplier offering the most favorable terms."

New Jersey Ratepayer Advocate Blossom Peretz, among the nation's leading state advocates of Community Choice, said she has submitted comments opposing the BPU's proposal. "Any bill that defaults consumers to the old utility while forcing communities to sign everyone on individually essentially preserves the status quo," she said. "Opt in is essentially a hidden barrier to competition. The whole point of municipal aggregation is market power for consumers. I oppose any proposal that limits this power." Peretz said she also opposes the BPU's proposed forced segmentation of consumer aggregation contracts. "You will not have market power unless all ratepayers are represented together," she said.

Copyright (c) 1998 by the American Local Power Project