N.J. town is first to negotiate bulk energy buy

"We could find nothing wrong with the program," said Peter Ylvisaker, Plumsted Municipal Utilities aide.
"We could find nothing wrong with the program," said Peter Ylvisaker, Plumsted Municipal Utilities aide. (TOM GRALISH / Staff)
Posted: March 11, 2013

NEW EGYPT, N.J. - Plumsted Township is an ordinary municipality in the middle of the state, much of it lying within the Pinelands National Reserve and the Joint Base McGuire-Dix-Lakehurst. At one time, its chief distinction was dubious: It had five Superfund sites, the most in New Jersey.

But in January, this Ocean County town of 8,400 residents got a new claim to fame: It became the first municipality in New Jersey to take advantage of a law allowing towns to negotiate a bulk purchase of energy supply on behalf of its residents.

The concept, known as municipal aggregation, knocked about 14 percent off the generation charge of the local utility, Jersey Central Power & Light.

The 1,800 households enrolled in the program will save about $165 each in 2013, said Peter Ylvisaker, the executive director of the Plumsted Municipal Utilities Authority. That's $300,000 extra that stays in the community this year.

"I think as you can see by the numbers, we've had a very favorable response," said Ylvisaker (pronounced Ill-vah-say-ker). Plumsted's residents are now supplied by ConEdison Solutions, a big power retailer.

Advocates of aggregation - including energy suppliers that could capture whole communities of customers in one swoop - hope that Plumsted's pioneering efforts will lead to a stampede.

"It's really building momentum," said Laurie Wiegand-Jackson, president of Utility Advantage, a Mount Laurel consultancy that is talking with some towns about setting up bulk energy buys.

Toms River Township, Parsippany Township, and Montgomery Township in Somerset County are moving to launch aggregation programs, said Robert Chilton, executive vice president of Gabel Associates, the energy firm that set up Plumsted's plan.

Medford in Burlington County is studying aggregation, but some council members are skeptical, said Christopher J. Schultz, the township manager.

"There were some concerns raised about why the town was getting involved in what is purely a private decision," he said.

Those Big Government vs. Free Market concerns are at the heart of the fundamentally different approaches to municipal aggregation taken in states with deregulated retail markets.

New Jersey is one of only six states whose laws allow for residents to opt out of a municipal aggregation deal. The opt-out provision is critical, because it ensures that a high rate of customers will be enrolled since most can be counted on to do nothing.

Advocates in New Jersey say the law protects consumers because municipalities can only sign deals at less than the utility's tariff rate. Towns can't make money from the programs. Customers who opt out can't be penalized.

"How can you say no?" said Joel L. Shain, a lawyer for the New Jersey State League of Municipalities. "The electrons are the same, but they're going to cost you less."

In Pennsylvania, several towns attempted to set up opt-out aggregation programs in 2010. Philadelphia City Council created the Philadelphia Energy Authority that year, aiming to empower the agency to buy electricity on behalf of residents.

But the Pennsylvania Public Utility Commission halted the initiatives because it said state law only allowed municipalities to create opt- in programs, where customers have to sign up to join the program, rather than choosing to get out.

Critics of the opt-out programs equate the process to "slamming," the nefarious practice where customers are signed up for a service without their knowledge. PUC Chairman Robert F. Powelson also worried that aggregation would suppress competition.

"I fear that the widespread enactment of municipal aggregation will prevent suppliers from making offers, thereby stifling innovation and competition and deterring the development of a robust retail market," Powelson wrote.

New Jersey passed its opt-out law in 2003, but the state's residential electricity markets did not become competitive until about three years ago.

Plumsted officials were intrigued by aggregation. "We could find nothing wrong with the program," Ylvisaker said.

Plumsted hired Gabel Associates, which solicited bids from suppliers. Two bidders offered discounts of more than 10 percent off JCPL's default price.

The winning bidder, ConEdison Solutions, was required to pay the township's $12,000 in legal and administrative costs. Gabel, the consultant, receives a brokerage fee of a fraction of a cent of each kilowatt hour sold.

Plumsted was allowed to switch only the 2,469 customers who had not already chosen another supplier. About 10 percent of the customers opted out, said Ylvisaker. Others who were behind on their payments were ruled out, leaving 1,800 households to join the aggregation.

Richard D. Rathvon, ConEdison Solutions vice president for retail commodity services, said it cost less to acquire the customers in bulk than it would if it tried to sell them individually.

The company's good fortune may be short-lived: Plumsted will seek bids later this year for a new supply contract for 2014.

Contact Andrew Maykuth

at 215-854-2947, @Maykuth or amaykuth@phillynews.com.

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