American Gas Association Finance Committee Chasing the Elusive Decoupling Clause

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American Gas Association Finance
CommitteeChasing the Elusive Decoupling Clause
March 1, 2007
Dennis Puma Manager, Treasury Services New Jersey
Resources
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Background

• Growing customer base
• Primarily residential and small commercial
• Consistent growth forecast
• Weather-normalization clause initiated in 1994
• Excellent Regulatory agency relations

NYC
Phila.
Atlantic City
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Events Converge

• NJ state policy to encourage conservation and
  energy efficiency

• Promote new burner tips wherever possible
• Fireplaces
• Grills
• Gas lights, etc.

Rising prices in 2005

• NJNG on the front end of that price increase
• Experienced steeper declining margins from
  conservation, offsetting customer growth

• Granted gas cost increases
• Wanted customers to feel the sticker shock to
  promote conservation

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Fiscal 2006 Firm Sales

• In total, firm sales were down 12.9 percent
• A little over one-half was attributed to weather
• Covered by WNC
• 10.3 million to be collected from customers
• Filed with BPU to collect in fiscal 2007
• Balance is not covered by WNC
• Lower usage due to higher prices

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Timeline

• December 2005
• Filed with NJBPU
• Join filing with South Jersey Gas
• 8 companies with decoupling in place 4 companies
  awaiting regulatory decision
• January 2006 July 2006
• Discovery
• About 50 data requests
• Education for NJBPU and Public Advocate
• Why is this good for all parties (state, NJNG,
  customers)
• Late June 2006
• Framework for a deal established
• September 2006
• PSEG merger fails to get regulatory approval
• October 2006
• Finalized deal

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Conservation Incentive Program

• Approved by the BPU on October 12, 2006
• Outside of traditional rate proceeding
• Incentive programs not affected
• Stabilizes NJNG gross margin from
• Declining usage
• Weather
• 3-year pilot - effective October 1, 2006
• NJNG protected for all variations in customer
  usage
• New customer programs being launched (2 million
  commitment)
• Stipulation recognized an initial customer level
  of savings of 10.6 million for each year of the
  pilot
• Capacity released from NJNG to NJR Energy
  Services

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Conservation Incentive Program
Basic Mechanics

• Actual customer usage compared to a benchmark
• Based on 4-year average
• If average use per customer for a group is
• Greater than the benchmark, NJNG returns margin
• Less than the benchmark, NJNG can collect margin
  in subsequent year
• Subject to certain tests
• ROE test of 10.50 percent

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Conservation Incentive Program
Short-term Actions

• NJNG must filie on June 1st to support for CIP
  calculation, propose new programs and provide
  evidence of gas cost savings
• Any price changes need BPU approval
• CIP charge/credit would be included in the
  delivery price while offsetting gas cost savings
  are in BGSS price

Long-term Actions

• NJNG will undertake a comprehensive evaluation of
  the effectiveness of the initial two years of the
  pilot program by November 1, 2008
• Includes an assessment performed by an
  independent third-party
• By April 1, 2009, NJNG will file a proposal with
  the BPU concerning the future of the pilot

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Conservation Incentive Program

• Customers
• Receive aggressive promotion of energy
  conservation and efficiency more ways to save
• Regulators
• Complementary program to NJ Clean Energy Program
• Utilities become a channel to the market
• NJNG
• Fully aligns financial, customer and policy
  interests
• 3.3 million in margin accrued in 1Q FY 2007

Provides benefits for multiple stakeholders and
is a sensible approach within the current
environment