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NJ Finally Gets Set for Deregulation

NJ Finally Gets Set for Deregulation

After working out a compromise on a divisive municipal aggregation issue, both houses of New Jersey's state legislature passed identical deregulation bills Thursday, paving the way for electric unbundling to begin Aug. 1 and gas unbundling to begin Dec. 31. The senate passed the bill by a vote of 27-6, and the assembly passed their version by a count of 59-9, with 10 abstentions. Gov. Christine Todd Whitman, who sources say helped broker the bill, has not said when she will sign the legislation into law.

In early January, a similar bill was passed by the senate but rejected by the general assembly because of differences over municipal aggregation. The senate's version required municipalities to aggregate customers by ordinance whereas the assembly wanted aggregation through a referendum. The two houses could not find common ground before the voting session closed for two weeks. Yet during the hiatus, key players from both houses and the governor hammered out a compromise. The new legislation mandates a municipal ordinance to select a supplier, but it also stipulates that customers cannot be pooled unless they give the ordinance their consent. Residents who don't respond to the ordinance are required to give written consent to the supplier they choose.

"The compromise properly recognizes the capabilities of municipal officials to organize pools of residents to obtain the lowest rates possible for families," said Senate Majority Leader Richard Codey.

On the electric side, the bill mandates an immediate 5% cut in customers bills and requires another 5% to be reduced over the following three years. New Jersey's electricity prices are 50% higher than the national average, one source said. Because the state's gas prices are in line with the national average, no state-required discounts are included.

The bill sets up a rigorous time schedule for electric and gas utilities, yet it also leaves many questions unanswered. ".[T]his bill is only a framework and gives the Board of Public utilities (BPU) the responsibility to create a successful competitive electric market," said Steve Montovano, Enron's director of government affairs. He added main deregulation issues, such as stranded cost recovery, utility affiliate codes of conduct, metering and billing unbundling, and an appropriate rate structure still need clarification and organization by the BPU.

Another cloudy issue, Montovano said, is the bill's "shopping credit" provision for electric utilities. The bill requires the deregulating electric utilities to offer these shopping credits to customers, which reflects an amount of money given to customers by the utilities as an incentive to shop for a supplier. This is the first legislation to actually include the credit. The bill does not say what the credit should be worth, and the BPU has yet to decide.

Some people involved with the situation expressed reservations. "Despite the fact the Legislature has adopted the bill, we continue to be concerned about the effect of rate reductions on reliability of service and jobs," said GPU Energy spokesperson Elizabeth Ard. GPU operates the largest electric distribution system across Pennsylvania and New Jersey. "Sustainable rate reductions plus the uncertainty of a possible further reduction that may result from a shopping incentive are of major concern to us," said Ard.

Gas utilities were more bullish. "We support this landmark legislation for recognizing that consumers want their utility as one of their choices," said Laurence Downes, CEO of New Jersey Resources Corp., parent company of New Jersey Natural Gas. "Our customers have overwhelmingly expressed their desire to be able to choose their natural gas and related services from the broadest of choices. This legislation gives them that choice."

Laura Conover, a New Jersey Resources spokesperson, said one advantage this legislation provides is the ability for utilities to compete in a deregulated gas market. "I know in Georgia, for instance, the utilities weren't allowed to compete. We're grateful for the chance, and once the rules get set, we'll come up with a competitive strategy." Conover said New Jersey Natural's pilot program, which she said has saved customers 3-7% off their gas bills, demonstrated the public's appetite for choice. The program started in April 1997 and allowed 40,000 people out of the utilities 360,000 customer base to choose suppliers. At last count, 27,000 people had switched to one of eight suppliers.

PSE&ampG also voiced its support for the bill. "When this process began over two years ago, the overriding goal was to create a plan that would be a solid foundation to support an open competitive market and allow an energy marketplace to mature. We believe this bill does that," said Lawrence Codey, CEO. Yet, he also expressed reservations over the strain deregulation will put on PSE&ampG. "We must adapt all of our customer service systems within a few short months to allow for choice. We must act as a backstop if a third-party marketer fails to deliver as promised. We must maintain the physical infrastructure of pipes and wires so that customers can continue to take safety and reliability for granted.Its going to be an enormous challenge."

John Norris

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