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NJNG Proposes Innovative Pilot Program to Encourage Conservation and Efficiency to Help Customers Reduce Their Energy Bills

Posted on: Monday, 5 December 2005, 15:00 CST

New Jersey Natural Gas (NJNG) filed a proposal with the New Jersey Board of Public Utilities today to implement a new pilot program that encourages energy savings to help customers reduce their bills. At a time when wholesale energy prices nearly doubled, there is a compelling need for a comprehensive change in pricing strategy. With this proposal, NJNG is taking an innovative approach to help customers reduce their energy use and save more.

"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 Laurence M. Downes, chairman and CEO of NJNG. "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."

Under this pilot program, NJNG would launch new conservation and efficiency programs designed to assist its customers in managing their energy bills. The proposal seeks a change in rate structure to enable the utility to still recover its operating costs while encouraging customers to conserve more. Furthermore, NJNG will enact a fundamental shift in corporate philosophy. No longer will the company promote burner tips and programs that encourage the increased use of energy and focus instead on conservation and efficiency.

NJNG's proposal more closely aligns the interests of the company with those of its customers. All of New Jersey's residents will be better served by lower energy use. For customers, this proposal provides better tools and information to manage their energy needs and the opportunity for greater cost savings. With a new focus on customer savings, the value of service offerings at NJNG will increase. Programs including direct mail campaigns, one-price, one-call upgrades and extensive community outreach will be launched to encourage energy efficiency and conservation. Benefits achieved through the state's Clean Energy Program will be enhanced. And, the confidence of the investment community will be secure.

If approved, the pilot program will be in place for an initial period for five years. NJNG has requested the BPU and the Ratepayer Advocate review the proposal as soon as possible so that the benefits can be delivered to NJNG's customers this winter.

Currently, the majority of NJNG's costs are fixed, while the most of its margin recoveries are based on the amount of natural gas consumed. This creates incentives for the company to grow throughput or sales volumes as a means of improving the opportunity to recover its operating costs and earn its authorized rate of return.

Under the proposal, NJNG would replace the existing Weather Normalization Clause (WNC) with a Conservation and Usage Adjustment (CUA) that would cover variations related to weather and customer usage. A benchmark for customer usage would be established. Each year, NJNG would compare actual results to the benchmark. By eliminating the link between usage and margin recoveries, NJNG will be in a stronger position to more aggressively and creatively encourage innovative efficiency and conservation efforts while maintaining its strong financial profile.

The proposal does not affect the cost of the commodity. NJNG does not make a profit on the cost of natural gas. Assuming the BPU approves the most recent rate adjustment, these costs will represent 75 percent of customers' bills.

The sharp rise in natural gas prices came as hurricanes ravaged the Gulf Coast, resulting in a decrease in natural gas production, and a warmer-than-normal summer caused an increase in the use of natural gas for electric power generation. The impact of these weather conditions, in addition to the already tight balance between supply and demand over the past few years and extreme volatility in the market, drove wholesale natural gas prices to all-time highs. Since June 2005, wholesale natural gas prices have, at times, more than doubled, 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 was able to secure the price for about 80 percent 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. The proposed pilot program is another step the company is taking to help customers manage their energy costs.

"The extraordinary circumstances we face demand new ideas and new approaches," Downes said. "At NJNG, we will continue to go above and beyond and do whatever it takes to meet our customers' needs and expectations. They deserve nothing less."

New Jersey Natural Gas (NJNG) is the principal subsidiary of New Jersey Resources (NYSE: NJR), a Fortune 1000 company and a member of the Forbes Platinum 400. NJNG is one of the fastest-growing local distribution companies in the United States, serving more than 462,000 customers in New Jersey's Monmouth, Ocean, Middlesex and Morris counties. This service area's demographics and quality of life contribute greatly to NJNG's growth. NJNG's progress is a tribute to the dedicated employees who have shared their expertise and focus on quality through more than 50 years of serving customers and the community to make the company a leader in the competitive energy marketplace. For more information, visit NJNG's Web site at njliving.com.

Source: Business Wire

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