EDITOR'S NOTE: Natural gas utilities are responding to fast-changing businesses opportunities. The Energy Times asked Jeffrey E. DuBois, president of South Jersey Gas, to address a range of issues facing the industry. The company serves customers in 112 municipalities across one-third of New Jersey.
This is last part of a series of conversations with gas utility executives.
Energy Times: Electric utilities are pursuing a new business model as many experience flat or declining sales. Are there any forces now compelling gas utilities to develop new business models?
Jeffrey E. DuBois
3 DuBois: During the last decade, our approach to new customer acquisition changed. In the early to mid-2000s, new construction projects made up a majority of our new customer base. The 2008 housing crisis and stagnant new construction market necessitated a shift in our approach. Today, most new customers are added through conversion to natural gas from other fuel sources such as oil, propane or electricity. While we’ve recently seen slight improvements in new construction, we remain focused on aggressive annual conversion growth targets. In 2014, we achieved our highest conversion total ever, adding nearly 6,000 customers. In addition, it’s important to mention our conservation focused rate structure. In 2006, we implemented a Conservation Incentive Program, effectively cutting the link between our profits and the quantity of natural gas we sell. Today, our profits are tied to the number of customers we serve and how efficiently we serve them, allowing us to focus on encouraging conservation and energy efficiency. The program has allowed our customers to significantly reduce their energy usage and costs – by well over 40 billion cubic feet and by close to $460 million. We also look to expand compressed natural gas fueling as an arm for utility customer growth. By investing in infrastructure that helps to mainstream this technology, we see potential for continued long term customer growth as households and business fleets add CNG vehicles.
Energy Times: How is your company planning to expand to serve burgeoning demand for distributed generation?
DuBois: By focusing on prudent infrastructure investments. Significantly increased volumes resulting from shale gas have driven natural gas prices lower. This has allowed us to both expand and upgrade our infrastructure to ensure safe, reliable delivery for current customers, while also reinforcing system capabilities for future customers. We have an opportunity to support distributed generation in the form of combined heat and power facilities. To help advance that technology, we need to have the ability to supply the gas loads they require, and in some cases that requires expansion of transmission or distribution systems. Two specific examples of this kind of expansion are the added capacity SJG will receive from the completion of the Columbia East Side Expansion project that’s currently under construction and our plan to install a pipeline to serve the BL England Electric Generation facility.
Energy Times: As the shale revolution continues and gas pipeline assets get built, how has that affected your wholesale and retail costs – and your overall business?
DuBois: Certainly increased supplies have brought natural gas prices down to near historic lows with associated costs trending similarly. This price advantage has allowed us to make significant accelerated infrastructure investments while bill costs for our customers remain at a level they were 10 years ago.
Energy Times: Aging gas distribution lines in urban areas remains a concern in many regions. What are your plans and budgeted capital expenditures on that front?
DuBois: In terms of overall system reliability and safety, SJG has implemented accelerated infrastructure improvement programs since 2009 that allow us to replace aging pipelines within our system, particularly bare steel and cast iron infrastructure. This work is taking place throughout our entire service territory, but most significantly in larger population centers within our region. Most recently, SJG received BPU approval for our Storm Hardening and Reliability Program. During the next three years, we are investing $103.5 million to upgrade our lower operating pressure distribution facilities along the barrier islands that are more susceptible to water intrusion during significant flooding conditions. The most significant portion of this work is being completed in Atlantic City, one of the largest urban centers we serve. Since 2009, and combining all of our infrastructure investment programs, through the end of last year we replaced more than 470 miles of gas main and nearly 22,000 associated service lines. From 2009 through 2014, we’ve invested more than $290 million in our infrastructure through these accelerated programs. We plan to spend an additional $152 million on these projects, for both accelerated infrastructure replacement and storm hardening, through 2017.