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State Asked to Review Regulatory Structure of NJ Retail Gas Market

Industry association argues ensuring more competition would drive down prices to customers

natural gas pipeline

The state is being asked to take a comprehensive look at how the retail gas market works in New Jersey and whether the current regulatory structure can be improved to make it more competitive and lower costs to customers.

The request is being submitted by independent gas companies that are frustrated with the state of the competitive retail energy market in New Jersey, which they view as stagnating nearly two decades after the state broke up gas and electric monopolies.

In a filing to the New Jersey Board of Public Utilities, the state arm of the Retail Energy Supply Association, an industry trade group, is seeking a proceeding it hopes leads to some fundamental changes in the way gas supply is handled by the four gas distribution utilities.

Review long overdue

A review of the New Jersey gas retail market is long overdue, according to the association. The market has changed significantly since 2003, the last time the state agency visited how gas supply is handled.

“There is a lot that has changed,’’ said Murray Bevan, an attorney representing RESA. Prices are lower, there has been an expansion of natural gas pipelines, and vast new supplies have been tapped in the Marcellus Shale formations in Pennsylvania and elsewhere.

“It’s been a seismic shift in how the gas markets operate,’’ agreed Robert Gibbs, chair of New Jersey RESA and director of corporate and regulatory affairs for Direct Energy. “Fourteen years is a long time for a market that has changed a lot.’’

Yet the market is not as robust as it could be. In its filing, only about 5 percent of residential customers have switched to so-called third-party suppliers from their utilities, and only 21 percent of commercial and industrial customers have done so, according to data from the BPU this past summer.

“The retail gas market in New Jersey, despite undergoing restructuring prior to the electric retail market (for commercial and industrial customers), is simply stagnating,’’ the association said in its filing.

Public Service Electric & Gas, the state's largest gas utility, defended the current system while noting gas bills are half of what they were in 2009, with the existing gas-supply process working to benefit customers.

The utility argued there is a robust market with many players over many years, according to a PSE&G spokeswoman. There are roughly 75 gas suppliers operating in PSE&G's system, she said.

‘Capacity release’

A major focus of the issues raised by the group revolves around “capacity release’’ programs, which allow the resale of unwanted capacity on interstate pipelines between utilities and third-party suppliers.

Essentially, third-party suppliers contend the current program is outdated and underutilized, leading to increased costs for the companies that are passed on to customers. It forces third-party suppliers to pay more for gas capacity than the utilities, impeding the development of competitive markets, the association said.

With the proper changes in the gas capacity-release programs, not only would residential customers benefit, but also the utilities, according to the association.

The association also is asking the board to revisit its practice of allowing utilities to accrue credits to customers totaling in the “millions or hundreds of millions of dollars per heating season.’’ The credits pile up when natural gas prices fall below what the utilities projected in June when they file their winter heating-season-tariffs.

The utilities do not make a profit on the gas they purchase for their customers with earnings derived from the fuel they deliver to homes or businesses.

The board has not yet acted on the association’s filing.

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