July 1, 2002

BY HAND  

Hon. Kristi Izzo, Secretary
New Jersey Board of Public Utilities
Two Gateway Center - 8th Floor
Newark, New Jersey 07102

                                     Re: I/M/O Provision of Basic Generation Service (“BGS”)
                                     Pursuant to the Electric Discount and Energy Competition
                                     Act, N.J.S.A. 48:3-57
                                     BPU Docket Number: EX01110754

Dear Secretary Izzo:

     Please accept this filing submitted on behalf of the Division of the Ratepayer Advocate (“Ratepayer Advocate”) pursuant to the procedural schedule set forth by the Board in its Order, dated June 6, 2002.  At this juncture, the Ratepayer Advocate presents principles and approaches, which we believe should guide the Board in assessing the detailed BGS proposals presented by marketers, wholesale suppliers, utilities, and other parties.  The Ratepayer Advocate’s recommended principles   and approaches for BGS service are found in the enclosed comments. We have also presented our comments in the guideline-format set forth in the Board’s Order.       

            Over three years have elapsed since the Electric Discount and Energy Competition Act (“EDECA”) was signed into law.  The EDECA changed the way that electric service is provided to ratepayers in our State.   Previously, for over ninety years, electric service was provided by regulated electric utilities as a bundled package of distribution service, transmission service, and generation service.  The EDECA unbundled those components of traditional service and provided ratepayers with the ability to choose their supplier for generation service.   Although New Jersey’s ratepayers now have the ability to choose their generation or energy supplier, for various reasons few have exercised their option.   Most New Jersey ratepayers rely on Basic Generation Service (“BGS”) provided by incumbent utilities for their electric energy.  Because so many New Jersey ratepayers depend on BGS service, all parties must be sensitive to the needs of current BGS customers.

  In order for the full benefits of EDECA to be realized, a competitive market for generation services must develop.  Some proponents of competition argue that the transition to a fully competitive market should be accelerated, and that BGS should be used as a mechanism to accelerate that transition.  While we recognize and understand their arguments, we believe that the ultimate success of energy competition depends upon a smooth transition from bundled utility services to a competitive generation market. 

 Since so many New Jersey ratepayers rely on BGS for their energy needs, the Ratepayer Advocate believes that BGS plays an important role in the transition process.  BGS should provide a safe harbor for residential and small commercial customers who are not ready to jump into the competitive market at this time. 

 From the perspective of ratepayers, BGS service should be simple to understand and should provide a measure of protection against price volatility.  However, as discussed more fully in our comments, incremental steps may be taken to reformulate BGS to ease the transition to competitive markets.  For example, residential and small commercial customers should pay seasonal rates determined by the cost of BGS supply acquired at multi-month auctions.   On the other hand, BGS for large sophisticated energy users should be moved towards real-time pricing, with an option for utility-facilitated hedging against future price changes.  To acquaint ratepayers with the concept of alternative energy suppliers, branding should be introduced on customer bills for BGS service.  We believe that these and other design principles set forth in our detailed comments, which are sensitive to the needs of the State’s ratepayers, will ease the transition to a competitive market.

 The Ratepayer Advocate intends to review the proposals submitted by all the parties and subsequently provide the Board with more detailed comments, in accordance with the Board’s procedural schedule.  Furthermore, the Ratepayer Advocate intends to work with Board Staff and other interested parties in this process.

Respectfully Submitted,
                                                                                   Seema M. Singh, Esq.
                                                                                                               Acting Director and Ratepayer Advocate

                                                                                                              By:________________________________                                                                                                      Felicia Thomas-Friel, Esq.
                                                                                              Deputy Ratepayer Advocate

encl.

c:              Honorable Jeanne M. Fox, President  (by hand delivery)
                Honorable Frederick Butler, Commissioner (by hand delivery)
                Honorable Carol Murphy, Commissioner (by hand delivery)
                Honorable Connie O. Hughes, Commissioner  (by hand delivery)
                Lance Miller, Chief of Staff
                Suzanne Patnaude, Chief Counsel
                Service List

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