Bay State Gas files proposal for residential unbundling pilot program.

WESTBOROUGH, Mass. --(BUSINESS WIRE)--June 10, 1996--Bay State Gas Company (NYSE:BGC) filed a proposal today with the Massachusetts Department of Public Utilities for approval to launch an aggressive pilot program to offer residential choice on November 1, 1996. The Pioneer Valley Customer Choice pilot program will introduce competition and customer choice to residential natural gas consumers in Western Massachusetts, and is expected to be one of the largest programs of its kind in the country and the first residential natural gas pilot in New England.

Residential customers participating in the pilot will have the opportunity to purchase their natural gas supply directly from their suppliers of choice, much like their long-distance phone service, and continue to rely on Bay State to deliver the gas to their homes. Bay State will also continue to maintain and expand its natural gas distribution system, read customers' meters, service appliances and equipment, and respond to customers' safety calls. The company has already successfully separated, or unbundled, its natural gas supply and delivery services for commercial and industrial customers.

"Utility restructuring has presented Bay State with the opportunity to offer customers additional choices," said Joel L. Singer, president and chief operating officer for Bay State. "We believe this will enhance our marketing efforts and enable us to increase throughput, or the volume of gas we transport over our distribution system." According to Singer, Bay State is financially indifferent as to whether customers purchase the natural gas commodity from them or another supplier, since the company earns a profit only from the transportation service it provides -- and not from the purchase and resale of the natural gas commodity.

Innovative Approach

"We believe the natural gas industry will totally unbundle its natural gas supply and delivery services within two to five years," said Singer, "and that pilot programs represent an important first step in that process. We also believe that a pilot program cannot be successful without active participation and cooperation from marketers. In addition, other stakeholders (consumer advocates, regulators, etc.) need to be involved in this major change."

"As such, we invited marketers and other key stakeholders to help us develop our pilot program. This participation went far beyond mere `round table discussions.' Rather, their participation involved rigorous weekly working sessions over a two-month period, which resulted in consensus on virtually all major issues."

The key stakeholders active in the Pioneer Valley Customer Choice development process included marketers, the Massachusetts Department of Public Utilities, the state Attorney General's office, the state Division of Energy Resources, and other gas and electric utilities. "As a direct result of everyone's willingness to collaborate, Pioneer Valley Customer Choice will be one of the largest and most aggressive residential unbundling pilot programs in the country," Singer said. Aggressive Design

"Our pilot program is clearly aggressive both in size and in `marketer friendliness,' and has been designed to benefit both consumers and gas marketers alike," added Singer. "Participating customers will immediately benefit from customer choice, without losing their current consumer protections. And for the long-term, increased competition should result in a much wider variety of products and services for energy consumers. Since we believe the program cannot be successful without the cooperation and participation of marketers, we've done everything possible to make the pilot attractive to them."

As proposed, up to 10,000 customers would participate during the first year of the two-year pilot program, with a possible expansion during year two. The company's 83,000 residential customers in its Western Massachusetts service area, except those who have service shut-offs scheduled, are eligible to participate on a first-come, first-served basis with no prequalification required. The service area includes 16 cities and towns: Agawam, Chicopee, East Longmeadow, Easthampton, Granby, Hampden, Longmeadow, Ludlow, Monson, Northampton, Palmer, South Hadley, Southwick, Springfield, West Springfield, and Wilbraham. Marketer participation in the program will be restricted only by credit worthiness and "code of conduct" standards. Participating marketers will have their choice of billing customers separately for the natural gas supply portion of their bills or for both their natural gas supply and delivery services. Marketers will also have the option of purchasing upstream pipeline capacity from Bay State. The company has requested regulatory approval on its filing by July 12, so that customers could enroll with natural gas suppliers as early as August 1 for natural gas service beginning November 1.

Implementation Challenges

According to Singer, Bay State sees this pilot program as a "learning laboratory" in which to study the challenges of providing residential choice.

In particular:

-- How to assist marketers in attracting 10,000 customers.

-- How to attract the best full service retail energy

companies onto the company's natural gas distribution

system.

-- How to expand participation of all stakeholders during the

second year.

-- How best to accelerate the learning process for all

stakeholders.

"We believe the goal of all stakeholders involved in the pilot program is to determine how competition can benefit natural gas consumers," said Singer. "For customers, this means learning how to make informed, but not overly burdensome choices from among competing suppliers. For utilities, this means learning what information system requirements, procedures, and services are needed to support residential natural gas delivery services. For marketers, this means learning what customers value and how to deliver services to the residential market. For regulators, this means learning the benefits, risks, and costs associated with customer choice."

Bay State Gas Company operates in three distinct, but related energy business segments -- Local Transportation, Energy Products & Services, and Energy Ventures. As New England's largest independent gas distributor, Bay State's Local Transportation business serves 297,000 customers in Massachusetts, New Hampshire and Maine. The company's Energy Products & Services segment offers energy commodities (such as natural gas, propane, etc.) and related equipment and services. In addition, the company invests in Energy Ventures.

This release contains forward looking statements. The company cautions that, while it believes such statements to be reasonable and makes them in good faith, they almost always vary from actual results, and the differences between assumed facts or basis and actual results can be material, depending upon the circumstances. Investors should be aware of important factors that could have a material impact on future results. Factors affecting the pilot program include, but are not limited to, the regulatory environment, customers' preferences, and other uncertainties, all of which are difficult to predict, and many of which are beyond the control of the company.

CONTACT: Bay State Gas Company, Westborough, Mass.

Carol Churchill, 508/836-7370