An NJBIZ story reports that non-utility electric retailers in New Jersey are having more success attracting smaller and mid-size customers in recent months, largely because the non-utility retailers can provide a price based on currently-low spot energy prices while utilities have their energy costs established in the state’s periodic “basic generation service” auction. From NJBIZ:
Regulated utilities, such as PSE&G and Jersey Central Power & Light, are unable to take full advantage of the current fall in energy prices, because they spread their electricity purchases over three years, Lopez said. So the utilities have bought only a third of their power requirements in the latest annual wholesale electricity auction; they would buy the remainder in auctions — held each February — in the next two years, he said.
Utilities like PSE&G cannot offer lower electricity prices proportionate to the fall in current market prices because “they have to layer in the more expensive prices they paid a year or two years ago,” said John Berg, manager of commercial and industrial sales for the Northeast operations of Direct Energy, a Houston-based electricity and gas retailer.
By contrast, energy suppliers like ConEdison Solutions or Direct Energy buy their electricity at current market prices after they negotiate fixed-price contracts for specified periods, said Berg, who’s based in the Iselin section of Woodbridge.
“With us, you get a flat, fixed rate” that protects customers from volatility in electricity prices, Berg said. PSE&G’s current average rate for a mid-tier commercial customer is 11.9 cents per kilowatt-hour; that could be as low as 11 cents with a competitive supplier, he said….
But PSE&G’s model for fixing rates works both ways, said Tony Robinson, the utility’s director of energy acquisitions in Newark. “Just as our customers didn’t see a spike in prices this summer when oil was $150 a barrel, our rates do not also reflect as quickly when prices decline as they have since January,” he said.
The story reports that about 20 percent of PSE&G’s large and mid-sized customers switched to competitors last year, with the rate of switching picking up in November. No doubt that when wholesale power costs start increasing again, customers will become less enthusiastic about renewing contracts at then-current rates.
But Robinson said he’s unfazed by customers preferring other electricity suppliers, since it doesn’t hurt the utility’s bottom line — PSE&G earns a return on the assets it uses in distributing energy, but makes no profit on the electricity supplies. At the same time, PSE&G customers who decide to buy their electricity from other suppliers still have to use the utility’s distribution infrastructure.
“If we lose a customer to an alternative supplier, he is free to go,” Robinson said. “We don’t care if he comes or goes.”
While at first this sounded like a less-than-consumer-service-oriented attitude, upon reflection this is good news.
With retail restructuring, it is good for the local wires company to be indifferent among the energy retailers chosen by consumers (including and especially if one of the retailers is an affiliate of the local wires company).