Only two weeks remain before certain commercial and industrial New Jersey electric customers are moved onto a new electric rate mechanism using hourly pricing, which will expose customers to spiking prices up to five times the normal rate (or more) if they do not shop for a competing energy supplier.

As noted several months ago, the cutoff for hourly priced Basic Generation Service -- the default supply offered to non-shopping customers by the New Jersey utilities like PSE&G and JCP&L -- will decrease to 750 kW on June 1, 2011.  The current cutoff is 1,000 kW, and the lower threshold means customers with peak demands from 750 kW to 999 kW who currently receive a single flat rate for their power from the utility will soon be paying a unique, volatile energy rate during every different hour of the day.

These customers being forced onto hourly pricing include big box stores, supermarkets, mid-sized office buildings, and small hospitals.

The new hourly pricing mechanism imposed on these customers by the utilities exposes these customers to wild swings in the wholesale electric market.  The wholesale price of electricity changes constantly throughout the day to reflect changing demand, spiking when usage is the highest.  In the summer, the highest usage typically occurs in the middle and late afternoon due to increased air conditioning load.

Greater demand for New Jersey electricity means the grid operator must instruct additional power plants to come on-line to meet the demand.  These supplemental power plants, called peakers, are older, less efficient, and more expensive than the "baseload" power plants which run throughout the day.

Under the mechanics of the wholesale electric market, peaking plants set the real-time market price for electricity.  This means the cost of power in the spot market can jump from $50/MWh when demand is low and no peakers are running to over $500/MWh when higher-cost peakers must come online.

Normally, under flat retail electric rates, customers are shielded from these wholesale price spikes, because the retail rate is insulated from changing wholesale market conditions.  However, under the hourly New Jersey electric rates charged to customers buying supply from the New Jersey utilities, customers are exposed to the spikes in wholesale power prices, and can see huge increases in their monthly electric bills as a result.

Fortunately, customers do not have to pay these hourly electric rates.  While the New Jersey utilities are only allowed to offer hourly pricing to customers above 750 kW, New Jersey customers have a choice in their energy supplier, and new competing energy suppliers in the market can offer customers a wide variety of customized energy products, including flat rates that protect customers against hourly price spikes.