New Jersey Natural Gas (NJNG) – which serves over half a million customers in the Garden State – announced on September 6 that a satisfactory agreement had been reached on a base rate case (Docket No. GR14040358) that the company first filed in November 2015.
The administrative law judge’s initial decision to accept the agreement is pending before the commissioners of the New Jersey Board of Public Utilities (BPU) for their final decision.
Under the agreement, NJNG would increase its total annual revenue by $45 million, effective on or around October 1, and would include a return on equity of 9.75 percent with a 52.5 percent common equity ratio. It reflects a rate base of $1.37 billion and an overall rate of return of 6.9 percent. Additionally, the utility’s overall depreciation rate will increase from the previously approved 2.34 percent to 2.4 percent.
The typical residential customer using 100 therms monthly could see an increase of $7.11, or 7.4 percent, on his or her monthly bill – from $95.44 to $102.55. In June 2016, NJNG announced a net decrease related to the Basic Gas Supply Service (BGSS) rate, including bill credits and other rate components that, if implemented on or around October, will offset the rate case increase for residential customers next year. The full amount of the bill credit will be determined in the fall of 2016.
“We believe a fair agreement has been reached and look forward to the final resolution of this base rate case,” said NJNG CEO Laurence Downes, adding, “We are confident the ultimate outcome will serve the best interests of our customers and company.”
This is the first base rate case filed by NJNG since 2007. From 2008 through 2015, the company says, it invested more than $806 million in its natural gas transmission and distribution system, including expenditures for customer growth, as well as system improvements, reinforcements, replacements and retirements.
In its original November 2015 filing, NJNG sought an increase of $148 million in its base rates. With adjustments for the Southern Reliability Link (SRL), bonus depreciation and other variables, the supported increase was revised to $113 million in July.
Due to the thorough and extensive regulatory review and permitting process, construction on the SRL has not yet begun. As a result, rate treatment for the project is not included in this settlement, but is expected to be requested in a future rate proceeding. The SRL was approved by the BPU in Board Orders issued in January and March of this year, and is currently going through the permitting process.
The agreement also includes a five-year extension of NJNG’s Safety and Facilities Enhancement (SAFE) program. The $157.5 million program will replace the remaining approximately 276 miles of unprotected steel main and associated services in the company’s distribution system.
NJNG stated that it has been routinely addressing the replacement of these facilities, and in 2015 became the first natural gas utility in New Jersey to eliminate all cast iron from its system. As a part of this program, NJNG will earn an Allowance for Funds Used During Construction (AFUDC) rate on its invested capital during construction, and request rate increases for SAFE spending in annual filings.
Similar regulatory accounting and rate treatment applies to the remaining expenditures associated with NJNG’s New Jersey Reinvestment in System Enhancements (New Jersey RISE) program, a $102.5 million investment in six capital projects designed to enhance the reliability of its natural gas distribution and transmission system in storm-prone areas.
With the approval of SAFE, NJNG will be required to file a base rate case no later than November 2019.
Base rates are the portion of the customer’s bill designed to recover NJNG’s delivery costs, including operating and maintenance expenses, and provide the opportunity to earn a profit. Typically, natural gas bills consist of two main parts: the delivery charge, which is the cost of delivering the natural gas and maintaining the distribution system, and the Basic Gas Supply Service (BGSS), which goes toward purchasing the commodity and moving it through the interstate pipeline system. Utilities do not make a profit on the sale of natural gas and the cost is a straight pass through to customers.
“If approved by the Board of Public Utilities, this rate adjustment will enable us to continue to adequately invest in our system, operate our business and provide our customers with the service they expect and deserve,” commented said Downes.