New Jersey regulators were asked last week to re-evaluate thepolicy of gas utilities regarding interruptible contracts, withsome critics calling for a state-wide ban on IT service to providesome relief from the spikes in heating-oil prices witnessed thiswinter.

Eric DeGesero, executive vice president of the Fuel MerchantsAssociation (FMA) of New Jersey, urged the New Jersey Board ofPublic Utilities (BPU) to consider such a ban on IT contracts,which allow gas utilities to temporarily halt service to theirlarge industrial and commercial customers when temperatures dipbelow 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 tooversell their capacity knowing that their competitors’ customerswill have to bail them out,” DeGesero said last week during ahearing before the BPU to investigate the price spikes in theheating-oil market.

Other less-drastic measures suggested by DeGesero included:limiting gas utilities to shutting off only a “fixed percent” oftheir IT customers; or mandating that IT customers purchase acertain amount of fuel product from their alternate suppliers eachyear. He particularly favored legislation that has been introducedin Connecticut, which would require IT gas customers to buy athree-week supply of alternate fuel each year.

As another option, DeGesero proposed that the temperature levelat which IT customers are shut off by the utilities be raised. Thiswould increase the “likelihood that they will be forced to usetheir alternate source of supply more than once every few years,and [as a result would allow] the suppliers and distributors oftheir alternate fuel to more accurately anticipate the impact ofthese customers and better prepare for the incredible increase ondemand.”

But New Jersey regulators, as well as gas utilities in thestate, don’t believe IT gas contracts had much influence over thestate’s heating-oil prices, which exceeded $2/gal. in earlyFebruary at the retail level. In a preliminary review, BPU staffsaid “we cannot conclude that the interruptible natural gascustomer class contributed in any meaningful way to the recentescalation in heating oil prices.” In the worst-case scenario, BPUstaff estimated IT gas customers in New Jersey consumed about741,000 barrels of fuel oil in January, which it said was about4.89% of the state’s total demand.

That “equates” to about 1.7 million gallons of fuel oil per daythat were used by IT gas customers during a two-week period in lateJanuary and early February, countered DeGesero. This, he said,represents half of the state’s average consumption of heating oilof 3,300,000 gallons/day during the heating season.

Moreover, he pointed out that IT customers “were not cut off oftheir natural gas supply until the middle of January, so theconsumption [of 741,000 barrels] represents only half of the monthand makes their impact all the more obvious…” Also, DeGeseronoted the figure doesn’t factor in February consumption of fuel oilby IT customers. Nor does it include the “many more millions ofgallons of kerosene, diesel fuel and residual oil [that] werediverted to keep interruptible customers warm,” he told New Jerseyregulators.

“This additional demand came at the time of peak demandand…..already tight supply. For the BPU to state that this had noimpact defies logic,” said DeGesero, whose group represents retailheating oil dealers and wholesale gasoline distributors in NewJersey.

Assuming BPU’s conclusions are correct, he asked the stateregulators to “explain why the Department of Energy is conducting astudy to find ways to lessen the impact of natural gasinterruptible customers on heating oil customers.” Also, why didNew Jersey Gov. Christine Whitman work “to see that theinterruptible customers stayed on gas” during the critical period?

The BPU staff review agreed with DeGesero on one point — itsuggested that IT customers be required in the future to show proofof adequate back-up supplies. “Given the magnitude of the volumesinvolved, it is unlikely that this would have a significant effect[on] the price of heating oil,” it said, but it’s “worthconsidering as part of a future, overall response plan.”

But any proposal that would require New Jersey utilities tocontinue serving IT gas customers during the peak winter periodwould do more harm than good, the review warned. First, it wouldlead to the “subsidization of these customers by all firm [gas]customer classes, including residential customers.” DeGeserocriticized the BPU for failing to recognize that heating-oilcustomers are the ones subsidizing the IT customers. Also, it wouldrequire “significant investment and take years to install” adistribution system to serve IT customers on a year-round basis,”the BPU staff review noted.

Moreover, the resulting high tariff rates “would undoubtedlymake it uneconomical for large [IT] customers to avail themselvesof the year-round service,” causing them to “burn an alternativefuel continuously and further complicate the [fuel-oil] supplysituation,” according to the BPU staff.

But DeGesero disagreed. “If interruptible customers were morefrequent consumers of their alternate fuel source, it would haveless of an impact since refiners, wholesalers and retailers couldmore accurately gauge the consumption and plan for it.”

Although the rate of service interruptions to industrial andcommercial customers on its system during January was the highestin five years, a Public Service Electric and Gas Co. (PSE&G)official told New Jersey regulators the impact of the interruptionson 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 fuelsource, accounted for a small portion of PSE&G’s total sendoutJan. 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 thehearing last week.

Wohlfarth also pointed out the largest class of PSE&G’s ITcustomers, which are served under its IT transportation tariff,uses No. 6 oil as an alternate fuel, not the No. 2 fuel oilcommonly used by homeowners to heat their houses. And none of itslarge IT contract cogeneration customers use No. 2 oil, but ratherconsume Jet A fuel, kerosene or butane as alternative fuels.”There’s no difference” between kerosene and fuel oil, FMA’sDeGesero shot back. “It’s the same product.”

The IT customers play a “critical role” in PSE&G’s supplyand capacity mix, said Wohlfarth, who added that any move torequire them to contract for year-round service would “undermine”that delicate balance.

Susan Parker

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