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NJ Utilities Propose Pilot Programs to Change Incentives, Encourage Conservation

New Jersey Natural Gas (NJNG), which serves more than 462,000 gas customers in the state, and South Jersey Gas (SJG), which serves another 317, 000, are proposing pilot programs to encourage energy conservation. The companies propose a fundamental change in focus and method of compensation so they can promote the use of less energy rather than more, aligning the distributors' interests with the customers' need to conserve and cut their energy bills.

This would mean that "instead of encouraging customers to use more energy by getting a gas grill, our primary message will be about how the customer can conserve energy," said NJNG spokesman Michael Kinney. While the company, like most LDCs in the current high-priced climate, already offers advice about conserving energy, the new program calls for a dedicated, all-points shift to the conservation message.

Service personnel would be trained to assess customer's homes or installations to make recommendations for cutting energy use. Call-in service personnel also would be on-message with the new strategy.

The five-year pilot programs for both distributors propose replacing the existing Weather Normalization Clause with a Conservation and Usage Adjustment, covering variations related to weather and customer usage. The utilities filed their proposals Monday with the New Jersey Board of Public Utilities (BPU). The pilot proposals would establish benchmarks for customer usage, and every year, the utilities would compare actual results to the benchmark.

Under existing rate structures, the gas utilities' profitability is tied to the volume of natural gas that customers use, and "this presents a strong financial disincentive for natural gas utilities to promote conservation in a meaningful way," said SJG. By eliminating the link between usage and margin recoveries, NJNG and SJG said they would be in better able to more aggressively and creatively encourage conservation and efficiency, while still maintaining a strong financial profile.

NJNG has requested the BPU and the state's Ratepayer Advocate review the proposal as soon as possible to enact the program this winter. SJG said it would put its proposal into action within 30 days of BPU approval.

"There is an urgent need to maximize the benefits of conservation opportunities for customers in the most efficient, economical and environmentally responsible manner possible," said NJNG CEO Laurence M. Downes. "At a time when customers are bearing the burden of higher energy costs, this proposal represents a real opportunity to align the interests of our company, customers and stakeholders and utilize conservation as an effective means to save energy and reduce costs."

NJNG said the pilot program would enact a fundamental shift in corporate philosophy: the company would no longer promote burner tips and programs encouraging the increased use of energy, and instead, it will focus on conservation and efficiency.

"The extraordinary circumstances we face demand new ideas and new approaches," Downes said.

While the proposal does not affect the cost of the commodity which accounts for 75% of customers' bills, the proposal is in response to the sharp rise in the natural gas commodity cost customers are having to pay. The high and volatile natural gas prices come as a result of a series of factors, including this past summer's hurricanes that decreased production at the same time increased power generation was building even more demand into an already tight supply/demand balance.

Since June 2005, wholesale natural gas prices have, at times, more than doubled, NJNG said, rising from $6.12 per decatherm for June purchases to $13.91 for October deliveries, a dramatic 127 percent increase, and $13.83 for November, a 126 percent increase over June.

Already, NJNG said it has been able to secure the price for about 80% of its anticipated natural gas supply for normal operations this winter using effective hedging practices and business strategies prior to prices reaching record levels. The company's hedged positions have saved customers approximately $20 million for November's supplies alone and are estimated to generate total savings of almost $140 million this winter versus the current market prices.

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