Spike In Energy Prices Shows Why Energy Deregulation Has Failed
BPU Power Auction Allows The Highest Bid Price To Set The Market Price
Energy Corporations Make Billions In Pure Profit
NJ Spotlight’s story today on legislative oversight hearings of the energy corporations in NJ for the first time finally mentioned the most important factor driving the increase in electric energy prices: the BPU auction process!
Watch and listen at time 3:50, when Lyle Rawlings talks about the “single price auction”.
A decade ago, I looked into the “BPU BGS Power Auction” and was amazed at what I found.
Based on PSE&G’s own legal brief to the US Supreme Court, I warned:
[1. – 6.]
6. The price of power is set based on the HIGHEST COST GENERATION SOURCE
When I first read about the BPU power auction, it was so absurd that I was sure that I was misunderstanding how the auction set the price of power. Since then, every time I read this my head explodes.
I don’t think the public has a clue about how the so called deregulated “free market” in energy actually works or how the so called competitive power auction works. Just think if when you went shopping, if you were forced to pay the price of the highest priced item – the filet mignon and Cadillac for everything!
In a must read story, David Kay Johnston exposes how the auction markets are rigged by industry fraud.
PSEG explains this clearly – how the BPU auctions lead to high prices and consumer ripoff even when they work as designed and are not rigged. PSEG wrote:
“The price that each generator receives for the power it produces is not ordinarily established by its own bid. Wholesale markets operate on the principle of the “single market clearing price.” All generators are paid the same price based on the bid of the last unit that “cleared the market,” that is, the most expensive unit needed to meet demand.”
Let’s repeat that - from the lawyers at PSE&G:
All generators are paid the same price based on the bid of the last unit that “cleared the market,” that is, the most expensive unit needed to meet demand.”
That is simply outrageous and it results in high prices and billions of pure corporate profit.
But Mr. Rawlings failed to note and NJ Spotlight failed to report that the BPU BGS auction was created by the 1999 NJ energy deregulation law known ironically as the Electric Discount and Energy Competition Act of 1999 .
There are no “electric discounts” and “competition” in that law! Orwell lives!
Perhaps followup legislative oversight and NJ media can probe flaws in the energy deregulation law enacted during the “Open For Business” deregulatory policy of the Whitman administration.
Another significant factor in rising energy prices is what are known as “capacity payments”. Last I looked, those capacity charges extracted over $1.5 billion from NJ ratepayers and the money went to pure corporate profits, see this 2013 post:
These charges are established by PJM, but BPU can limit them.
NJ Spotlight reporter Joanna Gagis did a fine job and let’s hope there will be follow on the can of worms she opened by reporting on flaws in the BPU’s auction.
After years of bureaucratic obfuscation by BPU regulators, spin by the energy industry, and recent lies by the Republicans to blame climate policy and renewable energy for high energy prices, there is a crack of light shining on the truth.
We must not let this moment pass – work to document the flaws in deregulation, demand an exit from the PJM system, and push for public power, similar to NY State.