REMARKS OF
BLOSSOM A. PERETZ, ESQ.,
DIRECTOR,
NEW JERSEY DIVISION OF
THE RATEPAYER ADVOCATE
Before the New Jersey
Board of Public Utilities
Gas Unbundling Hearings
September 27, 1999
Good morning, Commissioner Butler. I welcome this opportunity to address the Board of Public Utilities as it begins hearings that we hope will bring the benefits of natural gas competition to all New Jersey consumers.
Based on the result of the current status of New Jersey residential customer participation in the retail competitive natural gas marketplace, I am concerned that all New Jersey residential customers may not see the benefits of greater savings and new services that natural gas competition could bring, unless the Board takes decisive action as a result of these proceedings.
Simply put, the Electric Discount and Energy Competition Act, which mandates a competitive natural gas industry by January 1, 2000, provides no automatic rate discount as it does for the electric consumers, nor -- in the absence of a meaningful shopping credit -- any incentives for residential customers to shop or suppliers to offer competitive rates to residential customers.
And I believe we agree, Commissioner, that if effective competition for residential customers does not develop in the natural gas market, we will have failed to create an environment that encourages future rate cuts or the development of new technologies.
But I am an optimist. I look at the fact that this Board has in the electric unbundling proceedings laid the groundwork for establishing the most competitive electric marketplace in the country. I believe that the Board has the authority to similarly create a competitive natural gas marketplace for residential customers.
Afterall, the natural gas market is no less important for consumers than the electric marketplace. Millions of New Jersey homes rely on natural gas for heat. Many businesses also rely on natural gas -- including restaurants, laundromats, and larger businesses, for a variety of industrial processes.
Therefore, the focus of Ratepayer Advocate testimony will be to convince the Board to adopt a number of guidelines to promote a vibrant and competitive natural gas marketplace for all classes of consumers.
Here are our goals of this proceeding:
(1) The Board Should Establish Shopping Credits That Will Encourage Shopping and
Attract Competitors to the Natural Gas Marketplace.
First and foremost, the Board should establish shopping credits for all four gas utilities to create an incentive that will attract competitors to New Jersey, especially competitors seeking to service residential and small commercial customers.
The Board has already recognized the importance of shopping credits in the context of New Jersey’s electric markets. In the natural gas market, as in the electric market, the benefits of competition simply will not occur unless the Board establishes shopping credits that will encourage consumers to shop, and that will attract competitors to the marketplace. Only meaningful shopping credits give customers the incentive to investigate their options in purchasing energy and give energy suppliers incentive to offer service to residential customers in New Jersey. Otherwise, the competitive natural gas market envisioned by the Legislature and promised to consumers will not happen. Indeed, the lack of a guaranteed rate cut, which is present in electric but not in gas, makes it more important to consumers that market-viable shopping credits are established for natural gas.
(2) Competitors Should Have Access to the Resources Needed to Serve the Market
In order to serve gas consumers in New Jersey, a third-party supplier must purchase gas at the wellhead and arrange to have it transported to New Jersey via the interstate pipelines. Unlike the supply of gas at the wellhead, the available capacity on the interstate pipelines for transporting gas, and for related services such as storing gas in storage facilities operated by the pipelines, is limited. Because of their historic role as exclusive providers of gas supply service, the incumbent utilities control a significant portion of these limited resources. As customers begin to shop for gas supply, the utilities will no longer need these resources to provide gas supply service to customers who have chosen another supplier. These resources should be made available to competing marketers through voluntary capacity assignment. In other words, the utilities should be required to offer interstate pipeline and storage resources which they no longer need to customers or their suppliers, before they are offered to anyone else. Suppliers should not, however, be forced to take interstate pipeline and storage resources that are offered by the utility, since in a competitive marketplace some suppliers may be able to make other, more economic, arrangements to deliver gas to New Jersey.
(3) Switching Fees for Residential and Small Commercial Customers and Other Barriers to Competition Should be Eliminated
The Board should eliminate switching fees and other provisions that will deter consumers from shopping. The deterrent effect of switching fees was specifically recognized in the provision in the Act which prohibits all switching fees for residential customers.
Many commercial customers are not much larger than a typical residential customer. The utilities currently charge switching fees of up to $50 for their commercial customers. If smaller commercial customers are to have a genuine opportunity to shop, switching fees should be eliminated for them as well. Ratepayer Advocate is proposing the elimination of switching fees for commercial customers.
Other provisions proposed by the utilities also could be a substantial deterrent to choice for smaller customers. These include proposals to charge higher rates or penalties to customers who choose a third-party supplier, and then later return to Basic Gas Supply Service, as well as a proposal to require customers who return to Basic Gas Supply Service to take service from the utility for a minimum period of time, such as a year, before being permitted to shop for another third-party supplier.
In the new world of competition, consumers require flexibility in exploring the new marketplace. Residential and small commercial customers should be able to shop without being subject to penalties or conditions should they later decide to return to Basic Gas Supply Service.
Equally important is the elimination of administrative barriers to choice. Restrictions on enrollment, such as limiting enrollment to specific time periods, and requiring suppliers to sign up a minimum number of customers before being permitted to provide service to customers on a utility’s system, should be prohibited.
(4) The Board Should Unbundle the Component Parts of Gas Supply, so that Competing Suppliers Can Offer More Options to Consumers.
We urge the Board to require natural gas utilities to unbundle the component parts of gas supply, so that suppliers can offer more options to consumers. Although most customers will purchase gas supply as a single package, this service actually includes several component parts, such as buying gas at the wellhead, transporting the gas to New Jersey via the interstate pipelines, storing gas and making up differences in the amounts scheduled for delivery to the utility each day with the amounts actually used by consumers, i.e. balancing charges. Even though these components are "invisible" to the average consumer, they are important to the suppliers who will be competing in the State’s natural gas market.1
The more of these component services that are properly unbundled, the greater will be the ability of alternative suppliers to offer choices and lower prices to consumers. The Ratepayer Advocate has proposed that the utilities be directed to offer a minimum level of unbundled services, including an an option which gives suppliers the opportunity to provide at least some balancing services to all customers, by December 31, 1999, and to develop and implement additional options by October 1, 2000, in time for the 2000-01 winter heating season.
(5) The Board Should Pave the Way for Competition in Metering, Billing, and Other Customer Account Services by Requiring Complete, Fully Allocated Cost Data for These Services.
We also believe that the Board should require New Jersey’s natural gas utilities to determine unbundled rates for services that, under the Electric Discount and Energy Competition Act, are to become competitive in the near future. These include supplying and maintaining meters, reading meters, billing and maintaining customer account information. The Act requires the Board to initiate a proceeding not later than March 31, 1999 to consider whether some or all of these services should be opened to competition. To facilitate this process, the Board has ordered the utilities to develop unbundled rates for these services. To date, none of the utilities have fully complied with the Board’s Order. The utilities have presented only incomplete information, based solely on avoided costs. If customer account services are to be opened to competition, the Board will need complete cost data, including data based on fully allocated costs.
(6) Consumers Should Receive Clear, Easy to Understand Information
In order to shop intelligently, consumers need clear, easy to understand information. The first step in this process is a well-planned, well-executed consumer education program. A statewide consumer education program with the emphasis on electricity, developed under the Board’s authority, has already begun, although the utilities have not yet sought recovery of their expenses in implementing this campaign. If consumers are to pay for education, the Board should act now to assure that the details and costs of the utilities’ plans are subject to review in these proceedings.
Consumers also need clear, easy to understand pricing information in the utilities’ tariffs and on their bills. In order to shop intelligently, customers must be able to understand the unbundled rate information contained on the bill, and must be able to easily ascertain their shopping credit, or price to compare against offers by third-party suppliers. The Ratepayer Advocate recognizes that bill formats are being discussed in the Natural Gas Implementation Working Group. There is, however, a need for very clear Board direction that New Jersey utilities establish clear, easy to understand tariffs and customer bills.
(7) The Board Should Facilitate Aggregation
Finally, I urge the Board to establish rules that will encourage natural gas aggregation. The Ratepayer Advocate has consistently expressed concern that residential and small commercial customers may not realize the benefits of energy competition because they do not have usage volumes that are attractive to third-party suppliers.
Under the Act, local governments can act as facilitators on behalf of residential and business customers in exercising choice. Municipalities and counties can combine their needs for gas and electric service with those of business and residential customers.
The Ratepayer Advocate is urging the Board to require the utilities to provide local governments with the information they need to aggregate constituents and with the information consumers need to decide whether to participate in government aggregation programs. This includes usage data, address lists, and information on suppliers which they need to aggregate their constituents.
I am attaching a copy of a recent article "Natural Gas Aggregation:To Combine or Not Combine" prepared by Jamie Wimberly, V.P. Consumer Energy Council of America Research prepared for the Natural Gas Roundtable discussion on September 17, 1999 before the Missouri Public Service Commission.
(8) Universal Service Must be Assured
Consumers who have difficulty paying their utility bills should not be deprived of the benefits of competition. The Ratepayer Advocate urges the Board to adopt the following measures to assure that these consumers continue to receive natural gas service.
Creation of a universal service fund: The Act authorizes the creation of a universal service fund. This fund should be established and funded at a level that will provide adequate levels of basic affordable rate assistance, emergency rate assistance, and energy efficiency assistance. While the Act provides for a separate proceeding to consider the establishment and funding of a universal service fund, it is not to early to require the utilities to begin developing proposals.
Aggregation: Service can be provided to low-income consumers at a lower cost through aggregation. The Ratepayer Advocate is proposing that the Board (1) require each of the natural gas utilities to develop a low-income aggregation pilot project, and (2) create an Assistance in Aggregation Project to provide technical assistance in the aggregation of low-income consumers.
Data reporting and tracking: To measure the utilities’ success in maintaining universal service, the Ratepayer Advocate is proposing the establishment of reporting mechanisms to track the impacts of natural gas competition on low-income consumers generally, and universal service in particular.
Finally, before I conclude, I want to share a quote by Alexander Graham Bell that I particularly like. He said that:
Great discoveries and improvements invariably involve the cooperation of many minds. I believe benefits of natural gas deregulation can bring great improvements to the
lives of every New Jersey resident and business if we continue to work together. We look for lower rates, more choice and a plethora of new technology. I look forward to working with the Board, New Jersey’s natural gas utilities and all intervenors in this proceeding, to the benefit of all New Jersey consumers.
Footnotes
1) These components include: commodity service (buying gas at the wellhead); interstate pipeline transportation (transporting gas over the interstate pipelines to the utility’s distribution system); storage (storing gas, usually in large underground facilities operated by the interstate pipelines); peak shaving (supplementing deliveries from the interstate pipelines with small quantities of gas stored at facilities located within each utility’s service territory on cold days when consumers are using unusually large quantities of gas); and, balancing (making up differences in the amounts scheduled for delivery to the utility each day, with the amounts actually used by consumers). Back