UNION — The township recently took the first step towards buying electricity collectively as a community, something that is supported by legislation and being considered by other municipalities.
Although some towns in South Jersey are already established with this relatively new concept of community energy “aggregation,” many municipalities in this part of the state are just learning they can save energy dollars for residents by negotiating with third party suppliers for lower prices.
Union, as an aggregator, acts as an agent for a buying group by reviewing energy supplier options, negotiating offers and making decisions on behalf of all consumers in a municipality.
The theory behind local government aggregation is that by using their bulk purchasing power, towns can pass on greater savings to individual consumers. Likewise, by individual consumers joining together, they gain the ability to utilize a team of experienced professionals to negotiate prices lower than the average utility price. In many cases this has resulted in substantial savings.
It is important to understand this program covers only the power supply portion of a resident’s electric bill, not the delivery or the service. This means that consumers would still receive a bill from their present utility company, but the energy supply would come from another company.
Although deregulation allowed residents to purchase their power supply from a third party supplier, most have not done so. In part, this is due to a lack of understanding in how this process works and whether it is legal.
In 2003 the New Jersey Legislature approved the Government Aggregation Act to ensure these benefits of energy deregulation were passed onto consumers in the form of lower costs and greater choice of suppliers.
Energy deregulation refers to legislation passed in 1999 that separated the provision of energy as a competitive field from the distribution of energy. The distribution portion of this energy remained squarely in the hands of regulated utilities, which continue to have a monopoly on the pipes and wires delivering this energy to the homes of consumers and businesses.
Deregulation merely meant other companies, or suppliers, were free to compete to provide electricity or natural gas and consumers were free to choose who to buy it from on their own.
The 2003 law gave municipalities the right to “aggregate” or gather together all the residential and business accounts within their boundaries and solicit bids from suppliers in order to get the best price and terms for consumers. So why did towns wait so long to aggregate on behalf of residents in their municipalities?
Energy prices were capped for several years after deregulation so this type of program was unnecessary. Since then supplier prices have frequently fluctuated but retail prices continued to go up. In the past few years a number of third party suppliers and independent brokers entered the marketplace, mainly to address the needs of large-scale commercial users. More recently, third-party suppliers began offering various plans and discounts to residential consumers, although a lack of understanding about their options left many consumers wary of changing suppliers.
State regulations recently were modified to provide a clear path for municipalities to offer community energy aggregation programs. It should be noted that if the township ultimately decides to enter into an aggregation contract, all residents who have not contracted with a third-party supplier for their electricity will automatically be included in the program, but they can opt out. Those who previously contracted with a third-party would not be included, but they can opt-in after their contract expires. Business owners would not automatically be included and would have to opt-in to be included.
Residents concerned whether they would be getting “a good deal” with an aggregation program need not worry. By law the aggregation price to consumers must always be equal to or less than the regular retail price charged by the utility company, such as PSE&G or Elizabethtown Gas.
The question of why residents would have to opt-out rather than opt-in if they wish to join was part of the law passed in 2003 by the state legislature. The program was designed to ensure that a sufficient number of households participate in order to obtain a meaningful bid and therefore avoid the costly and time-consuming process of having everyone sign up individually.
By encouraging a larger pool of consumers and reducing the hassle and cost for the selected supplier, more suppliers are encouraged to bid, resulting in more competition and lower prices.
This was not the case when deregulation took place in 1999. The rules then required aggregators, in this case municipalities, to obtain a signature from every residential customer in order to participate. This became too difficult for towns to handle and therefore few, if any, were interested.
After a number of years, the New Jersey Board of Public Utilities recognized that the “opt-in” approach put a significant burden on the program and no municipalities were able to get started, so the law was adjusted.
There are safeguards in place. For instance, regulations require that an aggregation program show a savings over the rate of a utility-provided rate. Each consumer also is required by law to receive written notification after a bid is accepted by a municipality. This would inform them of the price, the comparison to the utility price and their right to opt out.
Municipalities are required to send forms to residents so they can opt out, but it has to be returned with their signature or they will remain in the program.
Union is not the first municipality to entertain this program. In fact, last year Plumstead Township in Ocean County became the first community in New Jersey to successfully complete a bid and award a contract to a supplier under the state’s government energy aggregation rules. Plumstead residents, according to information obtained by LocalSource, will see a 14 percent savings in the coming year on their utility bills, or $165 savings annually for the average consumer.
More recently, Toms River completed a deal that will save residents $4 million annually. The program begins this month and will run for 21 months, saving the average resident $121 annually. Over the 21-month period, it is estimated the average resident will save $175. Mayor Tom Kelaher felt the township made a wise decision in entering an aggregation program on behalf of residents.
“There is no question buying something in bulk is less expensive,” the mayor said in a release on the township’s website, adding that “in these economic times, every little bit helps.”
Toms River used Gabel Associates, a state registered energy agent, to negotiate with state approved energy suppliers. West Orange, which recently held a pubic information session so residents would understand the aggregation program more clearly, is also using Gabel Associates, who strongly believes educating a community about the program is critical to its success.
Gabel Associates, according to information obtained from West Orange, will be paid for their involvement by the energy supplier selected by the township, not taxpayer dollars. This, they said, was written in the request for proposal that Gabel Associates responded to initially.
It is important to note that a new supplier only supply’s the energy and the delivery system would still be under PSE&G. That means if there is a power outage, PSE&G, would have to repair the lines, not the energy supplier.
Under the proposed program, which is approved, regulated and overseen by the New Jersey Board of Public Utilities, the township would enter into a contract with a third-party electricity supplier following a competitive-bidding process. The contract would then be presented to the New Jersey Division of Rate Counsel and the NJBPU for review. If approved and the township moves forward with the program, Union would contract with the third-party energy supplier.
Township Administrator Ron Manzella, though, stressed that the township is just beginning a process that may or may not offer residents cost savings.
“We have just began the process required by law to move forward and as of yet we have no idea if it is worth it or not,” he stressed, adding it is important the community be educated about the program and how it works.
“The program basically means ‘gathering together’ in order to have greater buying power,” he explained, pointing out the township recently passed an ordinance allowing them to initiate the process.
State law requires a municipality to pass an ordinance that legally gives notification they are establishing a government aggregation program to purchase electric generation services.
After approving the ordinance the township would look for a consultant to represent their interests at a state monitored auction where an energy supplier would bid for a contract with Union.
Actually, residents can contract on their own with a third party supplier of electric or gas but the savings would be much greater if the township did it as a unit, Manzella said, with thousands of residents joining forces.
“The more people aboard, the more the savings,” he added, but noted the township is not taking over anything.
“Let me make this very clear. No one would be forced to do it. Residents can opt out if they want to,” the township administrator said, noting that if the township cannot save at least five cents per kilowatt, for instance, then they would not move forward with the aggregation energy program.
“Basically customers of PSE&G would still get their same bill they always have, but on their bill the line item for supplier of electricity would be different,” he said, suggesting customers look at their bill and will see that currently PSE&G supplies their electricity.
“If we get a supplier that can save residents money, then the supplier would be listed on the PSE&G bill as the source of energy and there would be a charge for the energy going through PSE&G infrastructure, which is how the energy gets to people’s homes,” he said.
Manzella also wanted to clear up any misinformation that has circulated about what the township is doing.
“The township would not make a dime on this. We are doing this strictly to help residents, as other towns are doing throughout the state,” Manzella said.
Manzella said the township fully intends to begin educating the community about the aggregation program, so all their questions are answered and concerns satisfied.
“We are going to hold public information meetings, send fliers out to residents and visit senior centers so residents fully understand what we are doing,” the township administrator said.
Manzella also said the township will be doing an energy audit to see how much energy is used by township residents so they can determine how much could be saved by utilizing a new supplier.
“All this ordinance does is put us in compliance with the law. We have a ways to go in this process,” he said, adding that if all goes smoothly, the township could have a state approved agent to represent them in the supplier market by the end of the year.