REMARKS OF BLOSSOM A. PERETZ, ESQ.
DIRECTOR, DIVISION OF THE RATEPAYER ADVOCATE
PRESENTED BY JUDITH B. APPEL, ESQ.
ASSISTANT DEPUTY RATEPAYER ADVOCATE, DIVISION OF THE
RATEPAYER ADVOCATE

PUBLIC HEARING
New Brunswick, New Jersey
September 6, 2000

My name is Judith Appel. I am an attorney representing the New Jersey Division of the Ratepayer Advocate. The Division of the Ratepayer Advocate represents the interests of all utility customers, including residential, small business, commercial and industrial ratepayers. The Division is also a party in every case where New Jersey utilities seek changes in their rates or services. The Ratepayer Advocate gives customers a voice in setting long-range energy, water and telecommunications policy that will affect utility services well into the next century.

Company Filing

Public Service Electric & Gas Company ("Public Service" or the "Company") is a combined gas and electric utility which provides natural gas utility services to more than one million customers located in Bergen, Hudson, Passaic, Essex, Morris, Somerset, Hunterdon, Mercer, Monmouth, Ocean, Burlington, Camden and Gloucester Counties. The Company recently filed a petition before the Board of Public Utilities ("BPU" or the "Board") requesting that Public Service be permitted to increase the amount by which it may adjust gas prices monthly within its Levelized Gas Adjustment Clause ("LGAC") through its Monthly Pricing Mechanism ("MPM") without further Board approval.

The Company is permitted to increase (or decrease) the gas cost component of its residential bills to adjust for the actual price it pays for gas. Currently it may increase that component by $0.07 per dekatherm (or .7 cents per therm) each month from November through April, with an annual ceiling of $0.35 per dekatherm (3.5 cents per therm). Through this petition the Company seeks Board permission for the following:

1) To increase from $0.07 to $0.35 per dekatherm (or from .7 to 3.5 cents per therm) the amount by which it can increase (or decrease) the gas cost component of its bills;

2) To utilize the Monthly Pricing Mechanism throughout the year, not just during the November-to-April period; and

3) To remove the ceiling on the total amount of increase (or decrease) permitted in any one year.

Approval of the $0.35 per dekatherm increase and removal of the annual Monthly Pricing Mechanism cap could potentially result in an annual rate increase of $4.20 per dekatherm (4.2 cents per therm), depending on the price of gas. If the Company were to increase the rate by the proposed maximum amount in a given month, the bill of a residential heating customer using 200 therms per month would increase by 5.1% and the bill of a residential non-heating customer using 25 therms per month would increase by 3.7% in that month.

Based on the Company’s current forecast of natural gas prices, the average annual bill for a residential heating customer using 1200 therms of gas per year will increase from $827.94 to $939.78, an increase of $111.84, approximately 13.5%. The average annual bill for a residential non-heating customer using 300 therms per year will increase from $204.09 to $232.04, an increase of $27.95, approximately 10.4%.

Review of the petition before the Board regarding the Monthly Pricing Mechanism increase will include a review of the Company’s Levelized Gas Adjustment Clause, of which the Monthly Pricing Mechanism is one element. . The LGAC is designed to permit the Company to pass through to its customers on an annual levelized basis the actual costs of natural gas which the Company incurs. As a result of the deregulation of the natural gas industry, gas commodity prices have fluctuated greatly. The Monthly Pricing Mechanism is designed to adjust the cost of gas in the LGAC in order to reflect changes in the market price and to reduce over- and under-collections. The Monthly Pricing Mechanism within the LGAC is applicable to residential customers in the following rate classes: Residential Service (RSG), Coogeneration Firm Service (CFG), Street Lighting Service (SLG), and Uncompressed Vehicular Natural Gas Service (UVNG). (It should be noted that the Company’s Commercial and Industrial customers have had monthly pricing since 1994.)

At the present time, the Ratepayer Advocate does not have complete information and details regarding the projected increases, rates and costs included in Public Service’s filing. However, it is common knowledge that gas costs have risen to unforeseen levels in 2000. Newspapers such as the Wall Street Journal and the New York Times, as well as the Star-Ledger and the Asbury Park Press, have warned of significant gas price increases in the wholesale marketplace. As a result of the rise in gas costs, the Ratepayer Advocate recently convened a meeting of senior executive and gas purchasing officers from all four natural gas utilities in New Jersey and Board of Public Utilities Staff in order to address the problem of potential large increases in customers’ gas bills. The Ratepayer Advocate is working with all of these parties to keep any rate increases as low as possible.

The increase in natural gas prices is caused by a number of factors, the most important of which are:

• Drop in production of natural gas.

U.S. production of natural gas was reduced sharply after prices dropped in 1998. Because prices were low, those companies which produce natural gas did not look for new sources of the commodity. Now, there is insufficient natural gas to meet demand. The producers have begun to drill for new supplies of natural gas; however, there will be a lag of 12 to 18 months before the new wells begin to produce.

• Increased Demand for Natural Gas

Demand for natural gas is rising. The Clean Air Act Amendments are causing electric generators to use nuclear fuel and natural gas instead of coal. Additionally, hot weather across most of the country, particularly in the West and Southwest, has resulted in increased use of gas to generate electricity. Much of the growth in demand for electric power will be met by electric power plants fueled by natural gas. Some new gas-fired generation units are being added, but most of the increase comes from higher operating levels of existing gas-fired electric generating plants.

• Adverse weather conditions

Hurricanes and other serious weather conditions and natural disasters, such as the recent explosion on the El Paso pipeline, adversely affect the price of natural gas. If serious weather conditions occur this fall, natural gas prices may rise further.

We do not wish to alarm you unnecessarily. There is a sufficient supply of natural gas to heat our homes this winter. Unfortunately, the cost of heating our homes may be higher.

Regarding Public Service’s proposed rate increase, the Ratepayer Advocate is currently reviewing data provided by the Company as well as information on the subject of gas cost increases from industry publications and the commodity markets. We will work with the Company, Board Staff and other intervenors to keep any rate increase as low as possible.

In our investigation of this matter, the Ratepayer Advocate is focusing on the following issues:

• The reasonableness of the Company’s proposed rate change; and
  
• The reasonableness of the Company’s gas purchasing policies.

Pursuant to our statutory mandate, the Ratepayer Advocate not only litigates matters such as this in hearings, but also negotiates and settles them when appropriate. Whether the Ratepayer Advocate litigates or settles a case through stipulation, the ratepayers’ best interests are our primary concern. If evidentiary hearings are necessary, we will cross-examine the Company’s witnesses and submit evidence. However, the ultimate decision regarding this and all other utility matters in New Jersey is made by the Board of Public Utilities.

The purpose of this public hearing is for you, the customer, to voice your opinion, relate your experiences and offer comments about the company’s filing. This hearing is being transcribed, and your comments will become part of the official record in this case. The judge will instruct you to give your name and address before you speak. It is important that you express your views, as they become part of the record on which the Board of Public Utilities will make its decision. The Ratepayer Advocate also wants to hear your views. We strongly encourage your participation, which will help us evaluate the Company’s proposal.

We know that you may have concerns about the proposed changes in your utility rates. I am available tonight, on behalf of the Ratepayer Advocate, to discuss your concerns, as are representatives of the Board’s Staff. We will be available to meet with you and answer questions at the conclusion of tonight’s public hearing.

On behalf of the Ratepayer Advocate, I would like to thank you for attending this evening.

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