Ban on IT Gas Contracts Sought in New Jersey
New Jersey regulators were asked last week to re-evaluate the
policy of gas utilities regarding interruptible contracts, with
some critics calling for a state-wide ban on IT service to provide
some relief from the spikes in heating-oil prices witnessed this
Eric DeGesero, executive vice president of the Fuel Merchants
Association (FMA) of New Jersey, urged the New Jersey Board of
Public Utilities (BPU) to consider such a ban on IT contracts,
which allow gas utilities to temporarily halt service to their
large industrial and commercial customers when temperatures dip
below freezing. The customers, which have dual-fuel capability,
then switch to the fuel oil market for supplies.
"This policy systematically allows the natural gas utilities to
oversell their capacity knowing that their competitors' customers
will have to bail them out," DeGesero said last week during a
hearing before the BPU to investigate the price spikes in the
Other less-drastic measures suggested by DeGesero included:
limiting gas utilities to shutting off only a "fixed percent" of
their IT customers; or mandating that IT customers purchase a
certain amount of fuel product from their alternate suppliers each
year. He particularly favored legislation that has been introduced
in Connecticut, which would require IT gas customers to buy a
three-week supply of alternate fuel each year.
As another option, DeGesero proposed that the temperature level
at which IT customers are shut off by the utilities be raised. This
would increase the "likelihood that they will be forced to use
their alternate source of supply more than once every few years,
and [as a result would allow] the suppliers and distributors of
their alternate fuel to more accurately anticipate the impact of
these customers and better prepare for the incredible increase on
But New Jersey regulators, as well as gas utilities in the
state, don't believe IT gas contracts had much influence over the
state's heating-oil prices, which exceeded $2/gal. in early
February at the retail level. In a preliminary review, BPU staff
said "we cannot conclude that the interruptible natural gas
customer class contributed in any meaningful way to the recent
escalation in heating oil prices." In the worst-case scenario, BPU
staff estimated IT gas customers in New Jersey consumed about
741,000 barrels of fuel oil in January, which it said was about
4.89% of the state's total demand.
That "equates" to about 1.7 million gallons of fuel oil per day
that were used by IT gas customers during a two-week period in late
January and early February, countered DeGesero. This, he said,
represents half of the state's average consumption of heating oil
of 3,300,000 gallons/day during the heating season.
Moreover, he pointed out that IT customers "were not cut off of
their natural gas supply until the middle of January, so the
consumption [of 741,000 barrels] represents only half of the month
and makes their impact all the more obvious..." Also, DeGesero
noted the figure doesn't factor in February consumption of fuel oil
by IT customers. Nor does it include the "many more millions of
gallons of kerosene, diesel fuel and residual oil [that] were
diverted to keep interruptible customers warm," he told New Jersey
"This additional demand came at the time of peak demand
and.....already tight supply. For the BPU to state that this had no
impact defies logic," said DeGesero, whose group represents retail
heating oil dealers and wholesale gasoline distributors in New
Assuming BPU's conclusions are correct, he asked the state
regulators to "explain why the Department of Energy is conducting a
study to find ways to lessen the impact of natural gas
interruptible customers on heating oil customers." Also, why did
New Jersey Gov. Christine Whitman work "to see that the
interruptible customers stayed on gas" during the critical period?
The BPU staff review agreed with DeGesero on one point --- it
suggested that IT customers be required in the future to show proof
of adequate back-up supplies. "Given the magnitude of the volumes
involved, it is unlikely that this would have a significant effect
[on] the price of heating oil," it said, but it's "worth
considering as part of a future, overall response plan."
But any proposal that would require New Jersey utilities to
continue serving IT gas customers during the peak winter period
would do more harm than good, the review warned. First, it would
lead to the "subsidization of these customers by all firm [gas]
customer classes, including residential customers." DeGesero
criticized the BPU for failing to recognize that heating-oil
customers are the ones subsidizing the IT customers. Also, it would
require "significant investment and take years to install" a
distribution system to serve IT customers on a year-round basis,"
the BPU staff review noted.
Moreover, the resulting high tariff rates "would undoubtedly
make it uneconomical for large [IT] customers to avail themselves
of the year-round service," causing them to "burn an alternative
fuel continuously and further complicate the [fuel-oil] supply
situation," according to the BPU staff.
But DeGesero disagreed. "If interruptible customers were more
frequent consumers of their alternate fuel source, it would have
less of an impact since refiners, wholesalers and retailers could
more accurately gauge the consumption and plan for it."
Although the rate of service interruptions to industrial and
commercial customers on its system during January was the highest
in five years, a Public Service Electric and Gas Co. (PSE&G)
official told New Jersey regulators the impact of the interruptions
on the usage and price of home-heating oil was "negligible."
For starters, the percentage of gas load that was interrupted,
forcing customers to switch to heating oil as a back-up fuel
source, accounted for a small portion of PSE&G's total sendout
Jan. 14-26, ranging from 6% (125,000 Dth/d) to 16% (380,000 Dth/d),
David W. Wohlfarth, general manager of gas supply, said at the
hearing last week.
Wohlfarth also pointed out the largest class of PSE&G's IT
customers, which are served under its IT transportation tariff,
uses No. 6 oil as an alternate fuel, not the No. 2 fuel oil
commonly used by homeowners to heat their houses. And none of its
large IT contract cogeneration customers use No. 2 oil, but rather
consume Jet A fuel, kerosene or butane as alternative fuels.
"There's no difference" between kerosene and fuel oil, FMA's
DeGesero shot back. "It's the same product."
The IT customers play a "critical role" in PSE&G's supply
and capacity mix, said Wohlfarth, who added that any move to
require them to contract for year-round service would "undermine"
that delicate balance.