December 4, 2001

Henry M. Ogden, Acting Secretary
New Jersey Board of Public Utilities
Two Gateway Center
Newark, New Jersey 07102

Dear Acting Secretary Ogden:

Please accept for filing this original letter and ten copies as the Ratepayer Advocate’s reply to the opposition of Public Service Electric and Gas Company ("Public Service" or "Company") to the simultaneous implementation of this Company’s proposed Gas Cost Underrecovery Adjustment ("GCUA") surcharge and Levelized Gas Adjustment Clause ("LGAC") reduction, on an interim basis, effective December 1, 2001.

Public Service, alone among the State’s natural gas utilities, is seeking to hold a commodity rate decrease hostage to a pending request for an increase in rates for distribution service. As noted in the Ratepayer Advocate’s November 20, 2001 motion in this matter, Public Service is proposing to implement its GCUA, approximately a 3.5% increase for a typical residential heating customer, while delaying the effective date of a proposed 8.9% LGAC decrease until the Board has decided the Company’s pending litigated petition for a base rate increase. The Company asserts that the purpose of this proposal is to "avoid confusing and mixed signals" to consumers. Public Service Response, p. 3. To the contrary, an ordinary, common-sense analysis shows that the Company’s proposal will result in confusion and resentment among customers who are faced with higher rates than last year despite great newspaper publicity reflecting declining natural gas prices nationwide.

In evaluating the Company’s proposal, is it important to note the timing of the rate increases authorized by the Board during the 2000-01 winter season. Public Service was allowed a total increase of 32%, consisting of an initial 16% effective November 1, 2000 and eight additional 2% increments each month from December 1, 2000 through July 1, 2001. I/M/O Public Service Electric and Gas Co., BPU Dkt. No. GR00070491, Order Authorizing Provisional Rates at 5, 6 (Nov. 1, 2000); Id., Decision and Order at 4 (March 30, 2001). Thus, much of the total increase took effect after the period of highest usage. For example, during January, 2001, when the highest usage occurred, only 20% of the total 32% increase was in effect. If Public Service is permitted to delay its LGAC increase, then in January, 2002 ratepayers will experience an additional 12% increase over last year, even without the Company’s proposed 3.5% GCUA surcharge.

The potential for customer misunderstanding is obvious. As shown in the numerous articles attached to the Ratepayer Advocate’s November 20, 2001 motion, the recent decreases in wholesale natural gas prices have been both dramatic and widely reported. Most of New Jersey’s natural gas users are aware of the wholesale price decreases. If Public Service’s customers are subjected to rates that are higher than last those in effect last year just as the winter heating season is beginning, while other New Jersey gas utilities customers receive a decrease, this will surely cause the "confusing and mixed signals" which the Company asserts should be avoided. Indeed, the Ratepayer Advocate’s office has already received complaints form consumers who do not understand why their natural gas bills remain high when wholesale natural gas prices have dropped. The Company proposal also is likely to result in hardships to those customers who have difficulty paying their winter heating bills.

The Ratepayer Advocate’s proposal to require immediate implementation of both the Company’s GCUA surcharge and LGAC decrease will not result in a "roller coaster" effect, as argued by Public Service. Public Service Response at 3. This argument assumes two propositions that are far from self-evident: (1) that the Company is entitled to a substantial base rate increase, and (2) that this increase will be implemented "within approximately a month." Public Service Response at 4. With regard to the Company’s asserted entitlement to a rate increase, the Ratepayer Advocate is opposing the Company’s proposed rate increase, and has presented testimony demonstrating that ratepayers are entitled to a base rate decrease. With regard to timing, briefing in the pending proceedings before the Office of Administrative Law was completed on November 19, 2001. Even assuming both the Administrative Law Judge and the Board issue their decisions within the 45-day time frames established by the applicable Office of Administrative Law rules, the proposed rate increase will not take effect until late February, 2002, after the bulk of customers’ winter heating usage has already occurred. Thus, even assuming Public Service receives a base rate increase, the impact of the increase will be offset by lower usage. Clearly, the "bottom line" impact on consumers will be much less noticeable under the Ratepayer Advocate’s proposal.

For the above reasons, in addition to those stated in the Ratepayer Advocate’s November 20, 2001 motion, the Ratepayer Advocate urges the Board to require Public Service to implement both its GCUA surcharge and LGAC decrease, on an interim basis, effective December 1, 2001. This is the proposal that will best serve the interests of Public Service’s ratepayers.

SHS/bj
Attachments
c: Service list

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