High Prices Cause Reconsideration of Model Retail Power Supply Auction

For several years, the annual basic generation service (BGS) auction New Jersey uses to procure power for retail customers who do not choose their own supplier has been touted as a model for other jurisdictions wrestling with retail competition issues.  In a somewhat surprising move, the New Jersey Board of Public Utilities (BPU) recently announced that, in light of rising power costs, it will explore alternatives to the BGS auction as part of the 2007 procurement process.

The BPU first used the BGS auction in 2002.  The process consists of a descending-clock auction that is conducted over the internet and intended to procure the lowest-cost power.  New Jersey's utilities enter into rolling three-year contracts with the winners of the auction.  The latest BGS auction led to impending rate increases of 12-14 percent for utility customers.  While the BPU has not renounced the auction, and still posts articles touting the auction's benefits on its website, it commenced this inquiry to explore the procurement process and related regulatory and political issues.  Under the BPU's procedural schedule, initial comments on the procurement process are due April 6, an open meeting to discuss comments will convene the week of April 17 and a hearing on April 24, final comments are due on May 4, and a final decision is expected by June 7.