Twelve years ago New Jersey established a competitive electricity market. After a brief period of activity, most competitive New Jersey electricity suppliers were unable to make profits and left the state. But in the past year competitors have returned, offering consumers discounts of up to 12 percent. Ironically, the state legislature is now subsidizing new generation- a move designed to suppress prices but likely to result in the opposite. How the state manages in the next couple years will determine whether New Jersey can sustain a competitive marketplace or returns to its former status as competitive in name only.

Competitors are making inroads in New Jersey by exploiting a weakness in the utility procurement scheme. The formula has been successful in keeping residents from large price swings when natural gas soared, but is preventing complimentary reductions now that natural gas prices are at all time lows.

Residential and small business electric bills are steadily declining, decreasing by about 1 percent last year and a 4 percent decrease this year. New rates go into effect in June. As of November, 98,700 customers out of New Jersey’s 3.3 million households had switched to alternative suppliers, up from a mere 213 households in 2009. About 6,000 are commercial and industrial customers. Across the river, Peco Energy Co. says 96,000 of its residential customers have switched suppliers.

And unlike other states with robust electricity marketplaces, New Jersey consumers are at a disadvantage when it comes to shopping. Residential customers in New Jersey are hard pressed to find reliable rate information. The state?s BPU website is out of date despite being a central piece of their now defunct $13.5 million promotional effort to educate consumers.

Among all the good news, state legislators are well on their way to limiting competition. In early 2011, the state passed a law providing millions in subsidies to developers of new power plants. The plan incentivizes natural-gas fired generation plants, specifically construction of 2,000 megawatts- the equivalent of powering 2 million homes.

By artificially flooding the market with more supply, consumers will end up paying more than necessary for reliable power. Ratepayers are already set to shell out an additional $1 billion to pay for the new plants. Additionally, tampering with the power supply could result in layoffs at existing power plants as their assets are reduced.

The legislation would also affect capacity markets- driving down the payments used to encourage plants to maintain enough generation to meet peak demand. In the long-term, such interventions could lead to black-outs and discourage plants from making upgrades on their own- exactly the opposite of what legislators intended.

New Jersey?s electricity marketplace is being revived thanks to the plentiful supply of natural gas. Consumers are finally enjoying the significant rate reductions promised decades ago. But any intervention in this market is likely to overshadow the recent progress and return New Jersey to a non-competitive market with some of the highest electricity rates in the country.