New Jersey Natural Gas (NJNG) and South Jersey Gas (SJG) received approval from the state’s Board of Public Utilities (BPU) Thursday to begin a three-year revenue decoupling pilot that separates distribution revenues from system throughput in order to remove the disincentive for the utilities to encourage conservation by their customers.

Going forward, utility profits will be tied to the number of customers served, thus allowing the companies to focus on encouraging conservation and energy efficiency. Interest in such revenue decoupling programs has grown as high gas prices have spurred increased conservation by consumers, reducing throughputs and, hence, reducing distribution revenues when they are calculated on a volumetric basis (see NGI, June 19).

The pilot, set to begin this month, was first proposed last December (see NGI, Dec. 12, 2005). It replaces the existing weather normalization clause with a conservation and usage adjustment, covering variations related to weather and customer usage that result in deviation from a benchmark level. By eliminating the link between usage and margin recoveries, NJNG and SJG said they could more aggressively encourage conservation and efficiency, while still maintaining a strong financial profile. No rates will be changed before Oct. 1, 2007, following a full year under the program.

Sam Pignatelli, SJG vice president of rates and regulatory affairs, told NGI that his company has seen a decrease in average use by residential consumer due to conservation/efficiency. He attributed the decrease to more stringent building codes and efficient appliances as well as to active conservation efforts by consumers, such as setting back thermostats. Pignatelli said he is aware of 11 utilities that have revenue decoupling pilots or programs under way, and NJNG and SJG bring the total to 13.

Pignatelli said that revenue decoupling in New Jersey is different from similar programs elsewhere because the pilot proposed jointly by SJG and NJNG was amended to stipulate that gas procurement savings realized through pipeline capacity release be used to offset the conservation and usage adjustment charge. This results in no net rate increase to customers, which Pignatelli said differentiates the New Jersey program.

Both utilities will be embarking on customer outreach programs to encourage efficiency and conservation. In the coming weeks residential customers of both utilities will receive information on efficiency and conservation measures. Small commercial customers will receive information and estimated savings resulting from state and federal incentives for energy efficiency investments. Customers will be provided discounted conservation kits and the ability to sign up for free conservation information updates by e-mail as they become available.

“This is an important milestone in the history of New Jersey Natural Gas and the future of our state,” said CEO Laurence M. Downes. “The issue of energy use is a pressing concern for our customers, company, state and nation. We cannot simply stand by and accept the status quo. New challenges require new ideas and new approaches. It is imperative for all of us, as we look to our future, to embrace conservation and preserve our natural resources.”

©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.