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DECOUPLING The New Jersey Approach: “Conservation and Usage Adjustment”

DECOUPLING The New Jersey Approach: “Conservation and Usage Adjustment”. Geography. Seneca Niagara Casino. Commodity Marketing. Warren County District Landfill. New York. SJG Service Area. Borgata Phase Ill. Borgata Phase II. Philadelphia. FPL Marcus Hook. Atlantic City.

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DECOUPLING The New Jersey Approach: “Conservation and Usage Adjustment”

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  1. DECOUPLING The New Jersey Approach: “Conservation and Usage Adjustment”

  2. Geography Seneca Niagara Casino CommodityMarketing Warren CountyDistrict Landfill New York SJG Service Area Borgata Phase Ill Borgata Phase II Philadelphia FPLMarcus Hook Atlantic City Wilmington Borgata Casino Mannington Mills Resorts Casino ACUA Landfill Phase II & III Washington D.C. ACUA Landfill

  3. 1999 NJBPU Promotes Unbundled Rates and Customer Choice SJG Sales Customer SJG TransportationCustomer Cost of GasPaid to SJG Cost of GasPaid to TPS Cost ofService Recovery Cost ofService Recovery Relative Cost per Therm

  4. WIN - WIN - WIN • CUSTOMERS REDUCED THEIR BILLS – BUYING GAS FROM A THIRD PARTY • NEW JERSEY’S CUSTOMER CHOICE INITIATIVE WAS A SUCCESS • SJG’S SHAREHOLDERS WERE NOT HARMED

  5. Conservation and Usage Adjustment • Observations • Average use per customer continues to decline as a result of: • Customer initiated conservation measures • Higher efficiency equipment being installed • Lower volumes delivered or sold deteriorates utility income

  6. Conservation and Usage Adjustment • Currently • SJG’s profitability is tied to the volume of gas that we deliver • SJG earns less margin as customers reduce their usage • SJG has had a disincentive to promote energy conservation

  7. Decoupling Decoupling Conservation and Usage Adjustment Decoupling removes the inherent disincentive that a utility has under traditional ratemaking to promote energy conservation Under the CUA we will help customers reduce their usage without negatively impacting the financial integrity of SJG

  8. Conservation and Usage Adjustment Under a decoupling mechanism, the utility cannot increase its earnings by increasing its sales volumes because additional margin revenues are returned to customers.

  9. Conservation and Usage Adjustment Adding new customers is how we will grow SJG’s earnings in the future

  10. Conservation and Usage Adjustment DECOUPLING MECHANISMS • APPROVED IN: CALIFORNIA, MARYLAND, NORTH CAROLINA, OREGON • PENDING IN: INDIANA, OHIO, NEW JERSEY • DENIED IN: ARIZONA, ARKANSAS, GEORGIA, WASHINGTON

  11. Conservation and Usage Adjustment Inside SJG’s “CUA” Proposal • Conservation and Usage Adjustment (CUA) is an expansion of the margin recovery mechanism embodied in SJG’s Temperature Adjustment Clause (TAC) • CUA rate adjustments can either increase or decrease a customer’s bill • Rate adjustment based on change in average use per customer applied against unit margins by class • SJG will launch new conservation and energy efficiency programs

  12. Conservation and Usage Adjustment Cost PerTherm$1.65 Cost of Service11% or $0.1808 Taxes15% or $0.2412 State Charges2% or $0.0314 BGSS72% or $1.1924

  13. Conservation and Usage Adjustment New Jersey, Customer and Company Benefits • Eliminates SJG’s disincentives to promote energy conservation • Removes the relationship between our sales volumes and profits • Provides increased opportunities to customers to reduce gas consumption, as a result of aggressive conservation initiatives promoted by SJG • Improves SJG’s ability to recover its fixed costs of providing service • Customers’ bills will more closely reflect the margin recovery amounts approved by the NJBPU in our last rate case

  14. Conservation and Usage Adjustment THE NEW JERSEY APPROACH TO DECOUPLING

  15. Conservation and Usage Adjustment THE NEW JERSEY APPROACH TO DECOUPLING STAY TUNED…

  16. South JerseyGas Proposed Rate Program PIPELINE INTEGRITY MANAGEMENT REGULATIONS

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