With New Jersey's gubernatorial election campaign season underway, increasingly high energy costs have become a contentious, high-profile issue. Some blame the state's focus on alternative energy over traditional fossil generation, though others point to escalating wholesale energy prices produced by the capacity market overseen by the Pennsylvania-New Jersey-Maryland (PJM) Interconnection, the regional electric power grid that serves New Jersey. Whatever the cause, increased energy costs have called into question the state's continued reliance on competitive retail energy markets.
For more than 20 years, New Jersey electric and natural gas customers have been able to "shop" for their electric or natural gas supplier under the retail choice framework established by the Electric Discount and Energy Competition Act of 1999 (EDECA), enacted as N.J.S.A. 48:3-49 et seq. Prior to the deregulation fights of the late 1990s that led to EDECA, the regulatory regime that existed in 1995 produced costs to ratepayers that were 50 percent higher than the national average, which led the state to restructure its retail energy markets by unbundling power and natural gas supplies from utility distribution services. Today, most of the state's commercial and industrial (C&I) energy consumers receive power and natural gas supplies from third-party suppliers at competitively established rates.
Recently, however, various bills have been introduced in the New Jersey Legislature or circulated informally that would reregulate utility rates while limiting or eliminating the retail competition established by EDECA. One such bill (A5439/S4306) would permit electric utilities to resume direct ownership of generating facilities and terminate retail electric and natural gas supply competition. A second draft bill under consideration would make the following major changes to EDECA's deregulated energy environment:
- The Board of Public Utilities (BPU), the agency responsible for regulating the state's electric and gas distribution utilities, would study leaving the PJM-electric capacity market and withdrawing from the PJM-managed electric grid in favor of either 1) a state-specific grid similar to the Electric Reliability Council of Texas (ERCOT) or 2) a new regional grid. A report on the BPU's findings would be due by the end of 2025.
- The state's electric utilities would regain the right to own and operate their own electric generation facilities and could re-bundle their rates to include the cost of rate-based generation assets.
- If an electric utility elects to own power plants, electric utility customers would lose the right to exercise retail choice through an electric power supplier. Gas utilities would have the option to elect discontinuation of retail choice but only for their residential customers. Large C&I customers would retain the right to choose their gas suppliers.
Future Considerations
If successful, such reregulation efforts would allow utilities to again add generation facilities to their rate base and earn a regulated return on those investments. C&I customers that have benefitted from retail choice, as well as utilities whose businesses may be restructured through reregulation, should pay close attention to the ongoing reregulation debate. Though the foregoing legislative proposals may amount to election year posturing about the state's increasing energy costs, with a lame duck legislative session on the horizon, anything remains possible.
Holland & Knight will continue to track these reregulation efforts and can assist clients in understanding and addressing the implications of the associated proposals, as well as other energy policy matters. Active involvement in utility ratemaking and stakeholder policy proceedings often is essential to achieving positive outcomes and avoiding unfavorable regulatory results.
