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In contrast to the intense efforts currently underway to bring the benefits of unbundling to all segments of the retail electric market, progress toward full unbundling of the residential marketplace in the natural gas industry has been slow. In December, 1993 the Board of Public Utilities issued its "Guidelines For Further Unbundling of New Jersey's Natural Gas Services," Docket No. GX93110516 (Dec.20, 1993), which initiated proceedings to establish unbundled transportation rates for New Jersey's commercial and industrial users of natural gas. As a result, commercial and industrial users have been free to purchase natural gas in the competitive market since 1994. From all accounts, including reviews conducted by the Board's Staff, gas unbundling for New Jersey's commercial and industrial customers has been an unqualified success.

In the residential marketplace, however, unbundled transportation services have been made available to only a limited number of customers participating in "pilot" programs, which have been implemented by three of New Jersey's four natural gas utilities, Public Service Electric and Gas Company, New Jersey Natural Gas Company and South Jersey Gas Company, with varying degrees of success. Thus far, unbundled transportation service is being provided to approximately 20,000 of New Jersey's approximate 2 million residential natural gas users--about one percent. One utility, Elizabethtown Gas Company, has no pilot program, and, of the three utilities with pilot programs in place, the largest company, Public Service Electric and Gas Company, has no residential customers participating in its program.

It has been widely recognized in electric unbundling proceedings across the nation that residential customers should be included from the outset, so that they will receive a fair share of the benefits of competition. That same principle should apply with even more urgency to the natural gas market, where commercial and industrial customers have had access to the competitive market since 1994. New Jersey's natural gas utilities have now had over three years of experience with their commercial and industrial unbundling programs. This has provided adequate experience for the utilities to now undertake residential programs.

The Ratepayer Advocate strongly supports legislation that would extend customer choice to all of New Jersey's residential users of natural gas. Such legislation should provide for full unbundling of the residential natural gas marketplace as quickly as possible, while preserving existing levels of consumer protection accorded New Jersey ratepayers. The positions set forth in these position papers with regard to electric restructuring apply equally well, for the most part, to the natural gas industry. However, two important differences must be recognized. The first is that, as noted, natural gas transportation service has been available to commercial and industrial customers for over three years. The utilities' experience with commercial and industrial unbundling provides a basis for an evaluation of the utilities' costs of providing transportation services, and the adequacy of the rates currently charged for these services to cover the utilities' costs. The unbundling process must include a full evaluation of the costs of providing existing services, as well as the additional services to be made available to residential customers. This is essential to assure that residential customers receive their fair share of the benefits of competition, and that customers electing not to enter the competitive market are not unfairly burdened with costs that should be borne by others. Second, the large potential stranded costs that characterize the electric industry are not present in the natural gas industry. Indeed, the long-term gas contracts with interstate pipelines and gas suppliers acquired to serve New Jersey's natural gas ratepayers may, for some utilities, have considerable value in the marketplace. Thus, in addition to dealing with potential stranded costs, legislation dealing with natural gas unbundling must also provide for the fair allocation of any stranded benefits.

The benefits of competition have been slow to reach New Jersey's natural gas marketplace. The Ratepayer Advocate has urged the Board to hasten this process (See Appendix A). Applying the same standards and principles enunciated in these energy position papers, namely, achieving lower rates for all classes of customers, alongside competition, consumer choice, and consumer protection, the Ratepayer Advocate strongly supports legislation that would extend the competitive market to New Jersey's residential gas consumers.

Appendix A


July 21, 1997

James A. Nappi, Secretary
New Jersey Board of Public Utilities
II Gateway Center
Newark, New Jersey 07102

Re: Docket No. GT96070524 - Order Soliciting Comments

Dear Secretary Nappi:

Please accept the following Proposal and Comments by the Division of the Ratepayer Advocate (Ratepayer Advocate) in response to the above referenced matter. An original and ten copies are enclosed. With this filing, the Ratepayer Advocate is submitting Comments to Staff's suggestions, as set forth in the above referenced Order, as well as a proposal that New Jersey Natural Gas extend unbundled transportation services to all its residential customers.

Also in a Preamble to our Comments, the Ratepayer Advocate respectfully proposes that at this time the Board reopen the unbundling proceedings of the other three LDCs and extend unbundled transportation to all residential customers within their service territories.

In this filing the Ratepayer Advocate proposes that the Board consider immediate termination of NJNG's current pilot program for residential customers, and concurrently open up NJNG's entire system to residential transportation. It is the Ratepayer Advocate's position that a residential pilot program is no longer necessary at this time, in light of NJNG's now close to three years' worth of experience in commercial and industrial unbundled transportation, and the desire of NJNG's residential customers for consumer choice as evidenced by the oversubscription in its current Residential Transportation Program.



When the Board issued its Guidelines For Further Unbundling of New Jersey's Natural Gas Services, Docket No. GX93110516, dated Dec.20, 1993 the Order stated that "The Proposed 'Guidelines' would not be applicable to residential customers at this time." Order, p.4. The Board went on to say that:

Once unbundled services, as proposed by the "Guidelines", have been approved and implemented, the Board will monitor each LDC's experience in terms of costs, reliability and customer satisfaction. The Board may then make a decision regarding a competitive residential gas market based on this actual experience. Order, p.4.

It is the Advocate's position that the time for this decision is now. It would be remarkable if the residential electric marketplace were unbundled before the residential gas marketplace, since gas unbundling commenced in 1994. That may well happen, however, since the Board has adopted an aggressive schedule for retail choice for all electric customer classes. Moreover, the Board is extending customer choice to residential customers from the very outset of electric restructuring. If the current gas residential pilot programs continue as originally approved, electric unbundling for the residential customer class will rapidly catch up and surpass the projected goals for the gas residential customers. It would be unfortunate indeed if New Jersey's pioneer gas unbundling efforts are not extended timely to include all residential customers.

Unbundled transportation rates for the commercial and industrial marketplace have been in effect in New Jersey for close to three years. From all accounts, including reviews conducted by Board Staff, gas unbundling in New Jersey has been an unqualified success. Numerous marketers are operating in New Jersey and in fact, the Board has just commenced the next step in the unbundling process to examine the cost basis of current transportation rates.

It is now time to extend the benefits of competition to all classes of customers and to extend customer choice to the only customer class left out, the residential gas customers in this State. There is no need for an extended use of pilot programs given the already successfully established industrial and commercial unbundling programs. Many commercial customers are of small size, and that itself has provided adequate experience for the LDCs to now undertake residential programs.

Continuing the pilot programs unnecessarily delays the full introduction of competition to the residential marketplace. The enthusiasm demonstrated by NJNG's residential customers to its Residential Transportation program demonstrates that the residential marketplace is ready for competition.1

When it issued Unbundling Guidelines the Board was faced with the fact that unbundling gas services was a new, uncharted territory and was therefore reluctant to extend unbundling to the residential marketplace at that time. That is now no longer the case. Indeed, in the electrical restructuring process the Board is requiring that residential customers will be included from the outset and that they will have a proportionate share in the unbundled electric marketplace. That same principle should apply now to the gas marketplace, with even greater urgency, since all the LDCs can draw upon their experience providing unbundled services to industrial and commercial customers.

For all of the above reasons and for all of the reasons set forth in our response to Staff's request, the Ratepayer Advocate therefore requests that the Board reconsider its prior Order in this proceding, and extend unbundled transportation services to all the residential customers in NJNG's entire service area immediately, with no limitation upon customer participation. In that fashion, NJNG's residential customers will be able to secure the benefits of the competitive marketplace for the coming winter, when most of their gas use will take place.

The Ratepayer Advocate also requests that the Board reopen at this time the unbundling proceedings for the other three LDCs, and extend unbundled transportation services to all residential customers within their respective service territories.



By Order dated January 9, 1997, in Docket No. GT 96070524, the Board approved a Stipulation which included, inter alia, offering a pilot Residential Transportation Program (RT Program) to 30,000 NJNG residential customers, over a three year period, in twice yearly increments of 5000 customers, with the first enrollment period commencing April 1, l997. The parties' initial expectation of low level interest proved unfounded, and by April 15, l997 the initial enrollment of 5000 customers was oversubscribed and the program closed. Numerous customers who wished to participate in this Program were therefore foreclosed from doing so.

On April 17, 1997 a complaint was filed by the Market Access Coalition (Coalition), a group of marketers, objecting to the participation by PSE&G in NJNG's residential pilot program as unfair competition, and objecting to NJNG's certification of PSE&G as a marketer in NJNG's service territory. The Ratepayer Advocate also filed a complaint alleging improprieties in PSE&G's participation as well as the participation of NJNG or its marketing affiliate New Jersey Natural Energy (NJNE). Horizon Energy, a marketer, filed an informal complaint with Staff alleging improprieties against NJNG and its affiliate New Jersey Natural Energy. Board Staff, concerned with customer dissatisfaction resulting from the oversubscription, suggested a number of changes to the Pilot Program. By Order dated 7-7-97, the Board requested comments within 10 working days on Staff's suggested changes, and reply comments five days thereafter. The Ratepayer Advocate will respond below seriatim to each of Staff's suggestions.


Staff's proposed change l. 1. In order to provide a reasonable grace period to allow customers applications received after the April 15, l997 close-out date to be considered, residential customers not among the first 5000 qualified for the RT Program should be allowed to participate if they had applied between April 15th, when the initial enrollment had officially closed, and a date to be determined.

COMMENT: The Ratepayer Advocate agrees that all customers who applied for residential transportation should be allowed to participate. The cut-off date should be the last date any customer filed an application. Moreover, the Ratepayer Advocate proposes that all residential customers be provided full retail access now and be allowed to exercise their own choice in procuring gas supplies.

Staff's proposed change 2. 2. The second enrollment period, beginning on October 1, 1997, should be eliminated.

COMMENT: The Ratepayer Advocate proposes that customer choice be made available immediately to all residential customers, which would eliminate the need for separate enrollment periods. However, if the Board does not see fit to institute immediate full retail access for all NJNG customer classes, including residential customers, at this time, the second enrollment period commencing October 1, 1997 should only be eliminated if another enrollment period is in effect at that time. Under no circumstance should fewer residential customers have an opportunity to participate in transportation, than is provided by the current Pilot program. Thus, unless 10,000 residential customers have been given the option of transporting by October 1, 1997, the second enrollment period should not be further delayed, as that would eliminate the possibility of residential customers, who consume most of their gas in the heating season, choosing their own gas supply in time for the l997-98 winter.

Staff's suggested change 3. 3. Enrollment should be opened up to the remaining 30,000 customers, minus the number of customers who are approved in the first enrollment period, on January 2, l998.

COMMENT: The Ratepayer Advocate proposes that the Board immediately allow retail choice to all NJNG's residential customers. In the event the Board does not extend retail choice immediately, the Ratepayer Advocate recommends that enrollment for unbundled transportation be opened up to the remaining 30,000 customers by September 1, 1997. This will permit those customers to buy only transportation from NJNG and purchase their own gas supply via marketers, or other means, in time for the winter of l997-98.

Staff's suggested change 4. 4. Enrollment into this modified and expedited RT Program should be available only to those residential customers who have signed to participate on or after January 2, l998.

COMMENT: The Ratepayer Advocate does not understand this distinction. If this means that there is no automatic transfer for customers who were frozen out from earlier participation because of oversubscription, that doesn't seem fair. Obviously their marketers should be given the opportunity to update their applications, depending on the date ultimately set by the Board for additional enrollments. The entire issue would be mooted, however, if the Board accepts Ratepayer Advocate's proposal for immediate retail access for all residential customers.

Staff's Suggested change 5. 5. During the enrollment period commencing on January 2, 1998, NJNG should be required to continue to provide marketers with the status of customer enrollments; oversubscription under this scenario would not be permitted.

COMMENT: The Ratepayer Advocate agrees that NJNG should continue to provide marketers with appropriate data, including the current status of customer enrollments. Again, this problem would be alleviated if there were full customer choice. Even if this were not the case, any customer who signs up in good faith with a marketer having the most current information available at the time, should be permitted to enroll. That could conceivably lead to some small over- enrollment, which should be permitted to avoid customer confusion and frustration.

Staff's suggested change 6. 6. A procedural schedule will be established to resolve the Coalition and Ratepayer Advocate's allegations listed in Docket No. GC97040275 prior to implementation of the beginning of the next enrollment period.

COMMENT: The Ratepayer Advocate has proposed immediate retail choice for all consumers, including NJNG's residential customers. In no event should the Board's consideration of this proposal be delayed because of any ongoing proceedings resulting from NJNG's initiation of its RT Pilot Program. If the Board orders immediate retail choice, it may well be that at least some of the disputes may be settled among the parties.

It is the Ratepayer Advocate's position that the allegations against PSE&G, the utility, marketing in NJNG's service territory can be determined by the Board at this time, as they involve legal issues. Until that issue is definitively resolved by the Board, PSE&G should not be allowed to continue to market in NJNG's service territory.

As far as the allegations against NJNG's marketing affiliate NJNE are concerned, an investigation should immediately commence as to any preferential treatment accorded NJNG's marketing affiliate by NJNG the utility. In the event the Board so finds, appropriate remedies may include refunds by NJNE of any profits from these transactions, or prohibition on NJNE marketing in NJNG's service territory.


As a final request, the Board asked for comments on "proceeding with the modified RT Program enrollment schedule should a resolution of the LGAC allocation issue not be forthcoming prior to January 2, l998." Order, p.4.

The Ratepayer Advocate assumes that this refers to NJNG's request that any residential customer that chooses to transport be assessed a proportionate amount of NJNG's current underrecovery.2 This issue is currently in litigation at the Office of Administrative Law, before ALJ MacAfoos, I/M/O New Jersey Natural Gas Company's Proposal for Unbundling OAL Docket No. PUC 2179-97; BPU Docket No. GT96070524. We suggest that the Board await resolution of this issue at the OAL at which time it will be returned to the Board for final decision. Until that time, it should be made clear to the marketers and to their potential NJNG transportation customers that a potential true-up charge for gas previously consumed but not fully paid for, may be assessed against any LGAC customer who, by deciding to exercise choice, will no longer pay for gas through the LGAC. It should also be made clear that this charge would have been exactly the same, had the customer stayed on the system and his purchases continued to be reflected in the LGAC. The only difference is that for the departing customer the charge will become a visible charge on his bill. For the LGAC customer, the true-up charge will be rolled into the LGAC component of his bill, unless the Board decides to show this charge as a separate component on the bill.

With adequate up-front disclosure of this potential true-up charge, there is no need to delay either full (as recommended by the Ratepayer Advocate) or partial (pursuant to the pilot program) residential choice because of this unresolved issue. At the appropriate time the Board will resolve this allocation issue and the appropriate charges will be reflected as decided by the Board.


Based on the argument set forth above in the Preamble and Comments, the Ratepayer Advocate respectfully requests that the Board:

1. Provide consumer choice to all NJNG's residential consumers, by opening up NJNG's entire service territory to residential unbundled transportation service;

In the Alternative

2. Accept the Board's Staff suggestions as modified by the Ratepayer Advocate's comments, so that the benefits of a competitive retail gas marketplace speedily reach NJNG's residential consumers.

3. Additionally, consider providing consumer choice to all the residential gas customers in this State, by reopening the residential unbundling proceedings of the other three gas local distribution companies, PSE&G, Elizabethtown Gas Company, and South Jersey Gas Company, for the purpose of extending unbundled transportation services to their residential customer classes.

Respectfully Submitted,

Blossom A. Peretz, Esq.
Ratepayer Advocate

Nusha Wyner, Esq.
Deputy Ratepayer Advocate


November 7, 1997

James A. Nappi, Secretary
New Jersey Board of Public Utilities
Two Gateway Center
Newark, NJ 07102

RE: Natural Gas Transportation Rate Reviews

Dear Secretary Nappi:

By letter dated January 9, 1997 Staff of the New Jersey Board of Public Utilities scheduled a meeting at the Board to discuss a "review of existing transportation rates in the context of a cost-of-service proceeding." (See attached letter.) On February 27, 1997, the meeting was held at the Board's offices with the gas utilities, gas marketers, the Ratepayer Advocate, and Board Staff, to discuss further unbundling of gas transportation rates, by separating out all sales related expenses from transportation related expenses. At the meeting a number of gas marketers expressed their concern that they would be competitively disadvantaged after January 1, 1998 because of the pending changes in the gross receipts and franchise tax structure. At that initial meeting the Ratepayer Advocate suggested that an appropriate starting point might be the utility's most recent (i.e. 1996) Annual Report to the Board where a utility's expenses are listed separately according to the Uniform System of Accounts.

Board Staff suggested that the interested parties work with the gas utilities to try to reach a consensus on separating transportation costs from sales costs. A series of meetings as well as telephone conferences were held, and some information was supplied by the utilities in several cost areas. However, at the present time there is no consensus as to the appropriate methodology for separating various costs, nor any suggested timeframe for achieving that end. It is evident that no resolution of this issue will occur prior to the change in rates necessitated by the gross receipts and franchise tax revision, which the marketers assert will have an adverse impact on their competitive positions.

Please accept this letter as the proposal by the Ratepayer Advocate to commence a proceeding to review existing transportation rates, define the appropriate scope of this review, and establish an expedited timeframe to be set by the Board in order for New Jersey to retain and further its competitive position in the energy arena. Towards that objective, it is essential that the gas utilities' rates properly reflect separately costs attributable to transportation as well as to sales. In order for that to occur, the Ratepayer Advocate recommends that the gas utilities update the cost of service studies performed for their most recent rate cases. Such an update should not be particularly expensive, and is necessary for a proper attribution of costs as well as their allocation, where required, between sales and transportation categories.

We respectfully suggest, therefore, that the Board initiate a docketed proceeding to consider rate changes needed to provide full and fair competition between the gas utilities and the marketers selling gas to customers in New Jersey, and to make the benefits of competition available to all consumers of natural gas services in New Jersey. This process will require a complete investigation of the appropriate allocation of costs among sales and transportation customers, including any balancing services provided. Accordingly, we suggest that the Board's Order include the following:

  1. Each of New Jersey's gas utilities should be required to file, on or before December 15, 1997, a cost of service study, based on data from its most recent base rate case, updated to reflect its most current cost data. In these cost of service studies, sales and transportation services should be placed in separate customer classes. In addition, the utility should be required to provide explanations and supporting documentation for all material changes in any current cost data from the costs reflected in the original cost of service study, as well as material changes in any expense category. Further, these cost of service studies should delineate specific costs, not just categories of costs, attributable to sales, transportation, balancing and other services, including the allocation of Administrative and General costs.
  2. Within 30 days of the submission of the cost of service studies, the marketers, and the utilities should be required to submit their proposals regarding the rate changes they wish the Board to consider. At the same time the Ratepayer Advocate will file a proposal regarding the appropriate rate changes. These proposals should result in the availability of competitive and reliable natural gas services for all classes of customers in New Jersey.
  3. Within one week of the above submissions, a schedule should be established to provide for expedited discovery, and, if needed, evidentiary hearings.

Respectfully submitted,



Sarah H. Steindel
Deputy Ratepayer Advocate


cc:Honorable Herbert H. Tate, President
Honorable Carmen J. Armenti, Commissioner
Michael Ambrosio, Executive Director
Elise Goldblat, SDAG
Helene Wallestein, SDAG
Service List



1) This despite the failure of PSE&G's pilot program which extended unbundled residential transportation to only four widely separated communities. The geographic separation made it uneconomic for marketers to service those communities, and points out an inherent flaw in pilot programs, which is that their limited scope undercuts their economic viability in the marketplace. Back

2) Note that NJNG did not make a similar request when industrial and commercial customers chose transportation. Back