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State Agency Green-Lights Discounts to Big Gas Customers

Utilities and customers can negotiate lower rates, as long as the deal is OK'd by the BPU.Some worry the decision will mean higher bills for other consumers.

Credit: PSE&G

The state agency responsible for overseeing gas rates has decided it is OK to allow larger customers to negotiate discounts with New Jersey utilities, as long as the agreement is reviewed by the Board of Public Utilities (BPU).

Some worry that the decision could saddle ratepayers with higher bills.

The policy has long been in place at the BPU, although the extent of the discounts had not been widely known until two years ago when the issue came up in a rate case involving the state's biggest utility, Public Service Electric & Gas (PSE&G), and became public knowledge as a result of reporting by NJ Spotlight.

In the PSE&G case, the BPU allowed the utility to negotiate an agreement with an affiliate that operated power plants so it could avoid the societal benefits charge (SBC), a controversial surcharge paid by virtually all of the state's nearly 3 million gas customers. The surcharge is the primary means of funding clean energy programs and low-income energy assistance programs. It amounts to about five dollars a month on a residential bill, but is much higher for customers who use a large amount of gas, sometimes exceeding more than $1 million annually.

An outcry about the arrangement from lawmakers and public interest groups led to a decision by the BPU to evaluate the policy. Even its staff could not say how many discounts had been granted by the four gas utilities over the past two decades. During the proceedings over the past year, it was revealed that there were 42 separate instances of gas utilities negotiating a discount with a customer. These discounts were for many different types of reductions.

An Interstate Tap

In most cases, the discount was granted because the customer had the opportunity to hook into an interstate gas pipeline system, a bypass that would significantly reduce revenue for the utility. It would also leave the rest of ratepayers liable for the cost of recovering the utility's investment in the pipeline. If that happened, advocates of the policy argued, it would lead to higher bills for other gas customers.

In some cases, however, the discount was granted when a customer threatened to shut down operations because of high energy bills.

In an order approving the policy, the state agency also said discounts could be granted in cases where a firm is threatening to move out of state unless it could negotiate lower rates, a step that some say could be a valuable tool in the state's kit of economic development incentives.

"It's good policy," said Steven Goldenberg, an attorney representing the New Jersey Large Energy Users Coalition, a group representing pharmaceutical companies and manufacturers. Since the state deregulated the gas and electric monopolies, Goldenberg said there has been recognition that "the board can play an effective role through ratemaking in economic development."

Wait and See

Not everyone was happy with the decision, though.

Stefanie Brand, director of the Division of Rate Counsel. "It's a good thing you cannot get a discount without the board approving it, but it remains to be seen" how often the board grants the lower rates.

In the case where the board can grant discounts to customers who otherwise might leave the state without the incentive, Brand argued it is a "slippery slope. It all depends how they are applying it."

The board, however, defended the discounts.

"The board disagrees with the implication that the very nature of the Discount Agreements are subsidized by other ratepayers," it said in its order. "In bypass cases, there is almost by definition, no subsidization since the primary objective of the granting a discount is to avoid losing revenue from the potential bypass customer with the fixed costs eventually being assumed by the remaining customers."

Brand also was unhappy with the board's decision to allow some customers to negotiate lower societal benefits charges with the utility. Under a bill passed earlier this year, gas-fired power plants will no longer pay the surcharge and other customers may appeal to their utility to lower the surcharge.

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