Retail Unbundling - New Jersey

Status: All residential customers in the state are allowed to choose gas suppliers.

Overview: Since January 1, 2000, all residential gas customers of the four local distribution companies (LDCs) in New Jersey have been able to choose their own gas supplier. However, competitive options are still quite limited as only three licensed marketers are offering services to residential customers. No marketers are serving customers in the NUI Elizabethtown service area, and only one is active in the Public Service Electric and Gas (PS&E) area. Three marketers are active in the service territories of New Jersey Natural Gas (NJNG) and South Jersey Gas. At this time, about 2 percent of the state's residential customers are buying gas from nonutility suppliers. Commercial and industrial customers in the state have had unbundled service since early 1995.

The strong customer response to some of the pilot programs that were initiated in 1997 led the state legislature to enact the "Electric Discount and Energy Competition Act" on February 9, 1999, which called for statewide unbundling of the natural gas industry by December 31, 1999. In January 2000, the Board of Public Utilities approved rate unbundling filings for all four of the state's LDCs, which included incentives for residential customers to switch to third-party suppliers. The billing structure (including who will prepare and send bills) for natural gas customers follows the electricity sales billing model. In September 2000, the Board approved measures that allow enrollment in customer choice programs through the Internet. Previously, a customer's written signature was required before any change could be made and Internet enrollments were limited to 10 percent. The Board's action is in keeping with the Electronic Signatures in Global and National Commerce Act (effective 10/00), which puts Internet transactions on a par with paper transactions.

EIA State Data: In 2000, New Jersey had 2,364,058 residential and 243,541 commercial customers. They consumed 220 and 159 billion cubic feet of natural gas, respectively. The average prices paid for natural gas purchased from LDCs by residential and commercial customers were $7.28 and $5.92 per thousand cubic feet, respectively. The average city gate price in the state was $5.34 per thousand cubic feet.

Eligibility/Participation in Retail Choice Programs: All residential gas customers may choose their own gas supplier. Three of the four LDCs serving New Jersey previously offered pilot programs for retail unbundling. Starting April 1, 1997, New Jersey Natural Gas offered a pilot program to 5,000 customers and South Jersey Gas to up to 10,000 customers. On May 1, 1997, Public Service Electric and Gas (PSE&G) offered its pilot program in only a small portion of its service area. In 1997, enrollment in those programs totaled less than 1 percent (17,656) of the 2,193,629 residential gas customers. PSE&G ultimately terminated its pilot program because of the small amount of customer participation (less than 1,000 customers). However, both the New Jersey Natural and South Jersey pilot programs were oversubscribed and enlarged. At the end of 1999, New Jersey Natural and South Jersey Gas had 30,527 (8.5 percent of eligible) and 35,653 (13.9 percent of eligible) residential transportation customers, respectively, while PSE&G had 1,425 (0.1 percent). Participation numbers have dropped since then for New Jersey Natural and PSE&G, but increased somewhat for South Jersey Gas.

Status as of December 31, 2001: Number of Customers

Customer Type

Total 2000

Eligible Participating
Total Percent of 2000 Total Total Percent of Eligible Percent of 2000 Total
Residential 2,364,058 2,364,058 100 57,040 2.4 2.4
Commercial/Industrial 253,341 253,341 100 18,387 7.3 7.3
Total 2,617,399 2,617,399 100 75,427 3.0 3.0

Sources: Total 2000: Energy Information Administration, Natural Gas Annual 2000 (November 2001). Participation: New Jersey Board of Public Utilities.

LDC Customer Data as of December 31, 2001, from the NJ Board of Public Utilities

Local Distribution Company
Number of Customers
Residential Non-Residential
Eligible Participating Eligible Participating
NUI Elizabethtown Gas 235,792 0 19,899 2,368
NJ Natural Gas 389,048 15,637 29,168 3,242
PSE&G 1,461,057 1,364 182,051 10,312
South Jersey Gas 268,046 40,039 22,222 2,465
Total 2,353,943 57,040 253,340 18,387

New Jersey: Regulatory and Legislative Actions on Retail Unbundling

Summary: The New Jersey legislature passed the Electric Discount and Energy Competition Act on February 9, 1999, which called for statewide restructuring of the natural gas industry by December 31, 1999. In March 1999, the Board of Public Utilities (the Board) ordered the four natural gas distribution companies (LDCs) in the state to submit rate unbundling filings by April 30, 1999, and set a tentative testimony and hearing schedule. In June 1999, the Board directed that a working group of gas utilities, third-party suppliers, and consumer advocates be formed in an effort to reach a consensus on some of the issues related to implementing retail competition, such as metering, billing, customer enrollment, and marketer agreements. The Board approved the rate unbundling filings of the LDCs in January 2000.

Regulatory and Legislative Actions

Legislation 2/99 The Electric Discount and Energy Competition Act, P.L. 1999. Opens up the state energy industry to competition, mandating restructuring of electric utilities by August 1999 and gas utilities by December 31, 1999. Utilities are to be given the opportunity to recover prudently incurred stranded costs. The Board of Public Utilities is to oversee the restructuring process and define standards for fair competition, gas affiliate relations, accounting and reporting, and third-party supplier licensing, safety, and service quality. Gas and electric power suppliers must be licensed before they can offer retail services. The act authorizes energy aggregation by private and government entities.
Regulatory Actions 10/01 Interim Universal Service Fund Established. Board ordered establishment of an interim universal service fund to assist low-income consumers with payment of their energy bills. Monies ($15 million) are to come from the state's electric and gas utilities. The fund will be publicized through direct mailings, bill inserts, web sites and coordination with customer assistance agencies.
6/01 Inquiry into Basic Gas Supply Services. Board opened inquiry into whether to make available basic gas supply service on a competitive basis. According to the Electric Discount and Energy Competition Act (1999), the Board is to make its determination by January 1, 2002. Basic gas supply service as defined in the Act is the service to customers who have not chosen an alternative gas supplier. The Board also directed the staff to form a working group to address the relevant major issues such as reliability, pricing, system balancing, and affiliate relationships.
2/01 Reporting Requirements for Third-Party Suppliers. Board directed all third-party suppliers to provide monthly status reports on their marketing efforts in the state for posting on the Board's web site. Information should include the local distribution territory(s) served, the customer classes served, and whether or not the company is actively marketing.
9/00 Approval of Internet Enrollment. Board approves Internet Pilot Program allowing NJ consumers to select energy suppliers on the Internet. Until now, a customer's written signature was required before any change could be made and Internet enrollments were limited to 10 percent.
1/00 Approval of LDC Unbundling Filings. The Board approved the rate unbundling filings of the state's four LDCs: New Jersey Natural Gas Co., NUI Elizabethtown Gas, South Jersey Gas Co., and PSE&G. The approved stipulations include incentives, effective through 12/31/02, for residential customers to switch to third-party suppliers.
9/99 Natural Gas Supplier Licenses. The Board reminded gas suppliers providing retail service as of 2/9/99 that they have until 9/10/99 to apply for a gas supplier license or to submit a letter of intent, which must be followed by a license application by 10/11/99. Failure to do so will result in the company being unable to provide gas supply service in the state.
6/99 Government Aggregation Standards. Final 6/25/99. Sets standards for cooperative purchasing of electric generation service and/or gas supply service, required contract provisions, and conditions for providing government aggregation programs. A government aggregator must allow (but not require) participation by residential and business customers, but customers must first provide written consent. A contract between a government aggregator and third-party supplier must specify (1) specific responsibilities of the parties, (2) charges, rates, formulas used to determine customer charges, (3) procedures to obtain a customer's written consent, (4) proposed terms of contract between customer and supplier, (5) aggregator resources associated with services, (6) contract duration, (7) indemnification provisions, (8) performance bond terms, and (9) compliance with Board mandated consumer-protection provisions. A government aggregator may have only one contract for either electric or gas service or both services for consumers within their jurisdiction but not two contracts for the same service.
6/99 Formation of Natural Gas Implementation Working Group. The Board ordered gas utilities to form a working group with third-party suppliers and consumer advocates to resolve nonrevenue issues associated with retail gas competition, such as enrollment, billing, data interchange, customer information, third-party supplier agreements, nomination procedures, and reliability. The group is to consider data exchange issues first, specifically the relevance of a uniform electronic data interchange system. The group is to provide recommendations to the Board when consensus is reached and identify any unresolved issues by 10/15/99.
5/99 Licensing and Registration Rule. Final 5/12/99. All third-party gas suppliers must be licensed by the Board of Public Utilities, including those currently providing service under pilot choice programs. Applications must include a list of planned services by customer class, a sample residential contract, evidence of creditworthiness, preceding 12-month historical data on NJ gas sales, revenues, and volumes, and a surety bond of $250,000. When an application is approved, the supplier pays an $800 licensing fee. The license is valid for 1 year and must be renewed at least 30 days before its expiration date. The licensee must comply with all mandated reliability and safety standards and supply pipeline quality gas (heating value of at least 1,000 Btu per cubic feet). Licensees must have a NJ office, maintain records for 3 years of any customer complaints and remedial actions, and comply with specific standards of conduct approved by the Board. Within 6 months of receiving a license, the supplier must provide the Board with the number of residential customers it serves in NJ, by zip code. The rule also specifies the registration processes for energy agents and private aggregators.
5/99 Consumer Protection Standards. Final 5/12/99. Gas suppliers' TV and radio advertising must provide a toll-free number where customers can get price information and the LDC delivery area of the service. Marketing materials must include the average price per therm for offered gas supply service, exclusive of optional services, the time period of the offer, the average price per therm for gas supply service for basic supply service by the LDC during the same period, and the estimated percentage savings. Optional service offerings must identify the separate charges. Service to retail customers cannot occur without a customer's written signature on a contract. The customer will receive notification of its supplier selection and has 14 days to rescind the decision. Bills must separately itemize charges for optional services and also identify separate charges of the gas supplier and LDC if the customer chooses to receive one bill. May not disclose any customer-specific information without customer's written consent. In complaints, customers must be informed of alternate dispute resolution procedures.
6/99 Restructuring Filing Clarification. The Board clarified that the scope of the LDCs' restructuring filings should allow analysis of all costs so as to identify all gas supply-related costs and supply-related overhead, administrative, and general costs. The Board directed companies to respond fully to discovery requests within 10 days and changed the deadline for intervener testimony from 7/16 to 7/22.
5/99 Anti-Slamming Provisions. Final 5/12/99. Any change in a supplier must be authorized by the customer and then verified. Authorization records are to be kept by the supplier for at least 3 years. Unauthorized switching could result in revocation of a company's license and in financial penalties.
3/99 Standards. Order Releasing Draft Interim Standards for Public Comment, Docket EX99030182. Proposed standards extend to both electric and gas utilities and cover affiliate relations, consumer protection measures, licensing of competitive energy suppliers, anti-slamming measures, service reliability, and aggregation programs. A utility may not give its affiliates (or affiliates' customers) any preference in providing regulated services; may not tie regulated service to any other product; and may not disclose any customer-specific information (unless requested by customer). Utilities and affiliates must be separate corporate entities with separate books and records and separate offices and computer systems. Joint promotions or proposals are prohibited and any use of a utility's logo by an affiliate in the state must be accompanied by a disclaimer stating that the companies are separate entities and that the affiliate is unregulated. Utilities cannot provide competitive products or services without Board approval; these services are limited to metering, billing, or administrative services and those services related to customer and public safety and reliability. Utilities can continue to provide previously-approved competitive services as long as a public tariff is filed within 60 days of final adoption of these standards. Gas suppliers must have an office in NJ and post bond. A supplier may not switch a customer's service without the customer's written permission.
3/99 Order Establishing Procedures, Docket GX99030121.The Board established procedures to implement restructuring of the natural gas industry as per the Electric Discount and Energy Competition Act. Gas utilities are directed to unbundle gas rates and by April 30, 1999, file (with supporting documentation) a proposed basic gas supply rate (by customer class), a proposed billing credit for customers who receive billing services from a third-party supplier, a "societal benefits charge" to recover prudently incurred expenses, a proposed regulatory asset charge, and a proposed transportation rate. Target hearing dates are set for 9/9/99 through 9/22/99.

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File last modified: 06/19/2002