Although the rate of service interruptions to industrial andcommercial gas customers on its system during January was thehighest in five years, a Public Service Electric and Gas Co.(PSE&G) official told New Jersey regulators yesterday theimpact of the interruptions on the usage and price of home-heatingoil 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),said David W. Wohlfarth, general manager of gas supply, during ahearing before the New Jersey Board of Public Utilities (BPU).

Wohlfarth also pointed out the largest class of PSE&G’sinterruptible transportation customers, under its TSG-NF 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 cogeneration customers use No. 2 oil, but rather consumeJet A fuel, kerosene or butane as alternative fuels. He estimatedthat IT gas customers account for 409 of PSE&G’s 1.6 millioncustomers.

“There’s no difference” between kerosene and fuel oil, counteredEric DeGesero, executive vice president of the New Jersey FuelMerchants Association, at Wednesday’s hearing into the heating-oilprice spikes. “It’s the same product.”

Critics in New Jersey contend the practice by PSE&G andother utilities of interrupting their gas customers, causing themto switch to fuel oil when temperatures plummet in the winter,contributed largely to the heating-oil price spikes in the state.DeGesero called on the state’s regulators to re-evaluate utilitypolicy on IT gas customers. He suggested a number of options,including limiting utilities to a percentage of customers that canbe interrupted, or requiring IT customers to contract for athree-week supply of alternative fuel. But PSE&G, the state’slargest utility, and the BPU downplayed the role of IT gas in theprice spikes.

In a preliminary review of the heating-oil market, New Jerseyregulators said “we cannot conclude that the interruptible naturalgas customer class contributed in any meaningful way to the recentescalation in heating oil prices.” In the worst-case scenario, itestimated IT gas customers in New Jersey consumed about 741,000barrels of fuel oil in January, which was about 4.89% of thestate’s total demand during that month.

That “equates” to about 1.7 million gallons of fuel oil per daythat were used by IT gas customers during that 12-day period,according to DeGesero.

Nevertheless, the review by BPU staff suggested that ITcustomers be required in the future to show proof of adequateback-up supplies. “Given the magnitude of the volumes involved, itis unlikely that this would have a significant effect [on] theprice of heating oil. It is, however, worth considering as part ofa future, overall response plan.”

But any proposal requiring New Jersey utilities to continueserving IT customers during the peak winter period would do moreharm than good, the review warned. First, it would lead to the”subsidization of these customers by all firm customer classes,including residential customers.” And, it would require”significant investment and take years to install” a distributionsystem to serve IT customers on a year-round basis,” it 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 review.

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

Many of PSE&G’s IT transportation-only customers (TSG-NF)”converted from oil to gas many years ago under the condition thatgas service would be interrupted at times and they would berequired to use alternative fuel. This arrangement [has been] awin-win for both these customers and the company’s firm customers,”he noted.

“Serving these customers helps us provide the most economicalsupply to all our customers, and in return, the interruptiblecustomers receive a discounted rate, nearly half of the rate asimilarly situated customer would pay for firm service,” Wohlfarthsaid.

He made clear that IT customers “could not be served on a firmbasis without substantial enhancements to [PSE&G’s] system atsubstantial cost to these customers. The system was designed toserve our firm gas requirements. The interruptible customers wereadded over time to balance the system load.”

©Copyright 2000 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.