Jan 31 (Reuters) - New Jersey on Friday will kick off auctions to acquire billions of dollars of power that will likely lower electricity rates for millions of homes and businesses in the Garden State.
Electricity traders guessed prices would decline because wholesale power is trading near its lowest levels in about 10 years due to weak natural gas prices from record shale production.
In most markets, including the PJM power grid, which covers 13 Mid-Atlantic and Midwest states, including New Jersey, natural gas is the fuel that sets the price of electricity.
Nuclear power dominates New Jersey's electric market, typically supplying more than half of the state's generation, according to U.S. government data.
Last year, New Jersey acquired about 8,200 megawatts (MW) of power worth about $7 billion in two auctions. This year, the state is seeking about 8,700 MW.
The first auction is for fixed-price power for three years for residential and small business customers. In 2012, the state sought about 5,200 MW of fixed-price power.
The second auction is for hourly priced service for one year for larger commercial and industrial users. In 2012, the state sought about 3,000 MW for the hourly priced service.
One megawatt powers about 1,000 New Jersey homes.
The New Jersey auction is one of the biggest in the nation. Electricity traders said what occurs in New Jersey will likely be reflected in other retail choice auctions.
More than a dozen states, including New Jersey, have adopted electric retail choice programs that allow end-use customers to buy electricity from competitive suppliers.
But not all customers choose to switch to other suppliers.
For those mostly residential customers who do not switch to another supplier, New Jersey requires the state's four investor-owned utilities to acquire power supplies for what it calls Basic Generation Service (BGS) in these auctions.
The four investor-owned power companies in New Jersey are units of New Jersey's Public Service Enterprise Group Inc (PSEG) , Washington, DC's Pepco Holdings Inc, Ohio's FirstEnergy Corp and New York's Consolidated Edison Inc .
The utilities pass along the cost of buying the power from the auctions to customers and do not profit from that sale.
The winning bidders in the BGS auctions last year included units of Citigroup Inc, ConocoPhillips, Exelon Corp, DTE Energy Co, Hess Corp, JPMorgan Chase & Co, Macquarie Group Ltd, NextEra Energy Inc, Noble Group Ltd, PSEG, TransCanada Corp and Con Edison.
The 2013 auctions will start on Feb. 1 and 4 and will likely end later next week, the traders said.
About 90 percent of residential and small business customers in New Jersey still buy electricity through their regulated utilities, while only about 10 percent of larger commercial and industrial companies rely on the auctions for their power.
All New Jersey customers have the option to buy power from competitive suppliers, but businesses are quicker to make the switch because they use much more electricity and can save a lot of money from a small reduction in rates.
Some of the biggest power retailers in New Jersey are units of Con Edison, Dominion Resources Inc, Exelon, Centrica PLC, FirstEnergy, GDF Suez SA, NextEra, NRG Energy Inc, PPL Corp and Hess.
To reduce price volatility for residential and small business customers, the state blends three years of auction results to come up with rates.
Starting in June 2013, a third of residential power will come from the 2011 auction, a third from 2012 and a third from 2013. Each auction covers a three-year period.