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Gas Restructuring: Can Distributors Repeat the Success of Pipelines?

Fortnightly Magazine - October 15 1997

behind you. This is not going to be that easy."

In fact, Wohlfarth says, that company is no longer in the gas marketing business. Despite the growth in the number of marketers qualified to sell to industrial and commercial customers in PSE&G's service territory, only five to 10 marketers are what Wohlfarth calls "truly active." He refers to this phenomenon as a "thinning-out process between the contenders and the pretenders."

About 14,000 of PSE&G's 180,000 firm commercial and industrial customers have become transportation-only customers since supplier choice began. That's only 8 percent by number of customers. But they represent 35 percent of PSE&G's industrial and commercial load.

"The marketers are going to those customers that present the best opportunity to achieve profitable margins," Wohlfarth says. "Those are the largest usage and highest load-factor customers. It's left us, from a supply perspective, in a less desirable position, because it's easier and more cost effective to serve the higher load-factor customer."

To respond to the decline in load factor, PSE&G is undertaking a comprehensive review of its gas supply and capacity portfolio. "We're looking at what we have under contract now," Wohlfarth says. "Is it the optimum type of capacity mix, meaning a combination of firm transportation on the pipelines, storage contracts with the pipelines and our peaking capabilities? We'll be taking the necessary steps to try and match up what would be the most economic portfolio to meet this changing marketplace."

The utility has taken an equally significant step on the regulatory side. Its industrial and commercial unbundling program called for a review after two years. As a result of negotiations among marketers, BPU staff and the state ratepayer advocate, PSE&G got out from under its service obligation.

Says Wohlfarth: "Our position was that if unbundling is supposed to bring better economic supplies to the marketplace, [the obligation to serve] is really counter to that because we would be keeping contracts that were no longer useful but were being held for that particular point in time when a customer may decide, 'Well, gee, I didn't like unbundling, I want to come back to PSE&G as my supplier.'"

Under the new arrangement, when an industrial or commercial customer opts for transportation-only service on PSE&G, he has the right on the first anniversary of that choice to come back to the utility at the regulated sales service rate. "If he elects not to come back at that anniversary date, he no longer has our regulated sales service available as an option," says Wohlfarth. "This allows us to go out and terminate contracts, restructure contracts with our pipelines and other suppliers and try to get the most cost-effective portfolio. This benefits all our remaining sales customers.

"If the customer does make the election not to come back, we are not precluded from supplying that customer at a later date with a sales service, but that sales service would in essence be a market-price service," he says. "We would supply it to the customer just like any other marketer would supply it."

PSE&G also has responded to