DPU approves Bay State Gas rate redesign settlement.

WESTBOROUGH, Mass.--(BUSINESS WIRE)--Dec. 26, 1995--Bay State Gas Company (NYSE: BGC) recently received approval from the Massachusetts Department of Public Utilities (MDPU) to redesign its gas rates and to launch a Massachusetts Residential Unbundling Pilot Program.

This pilot is expected to be the first program of its kind offered in New England.

"Similar to the transformation that has already taken place in the telecommunications industry in the United States and the transformation under way in the United Kingdom and Canadian energy industries, we see the U.S. retail gas industry ultimately evolving to become a fully unbundled, competitive industry," said Joel Singer, Bay State's Chief Operating Officer. "We believe our rate redesign and residential unbundling pilot program will help to accelerate this process and will provide growth opportunities for both our company and the energy industry."

Bay State to Launch Massachusetts Residential Unbundling Pilot Program

Bay State's residential pilot program will allow participating households to buy transportation service from Bay State, and will give these customers the choice to select gas supplies from unregulated suppliers. The company's pilot program will be conducted in three phases: Phase I; program development, Phase 2; pilot implementation, and Phase 3; program assessment.

"We plan to conduct the pilot program by encouraging significant involvement by the key stakeholders of the program," Singer continued. "These stakeholders include participants in Bay State's rate redesign settlement process, such as UtiliCorp United, Enron Capital & Trade, the Mass. Attorney General's office, the Mass. Division of Energy Resources, the Mass. Oilheat Council, and the Mass. DPU, as well as Bay State's employees, progressive retail market aggregators, representatives of the investment community, and most importantly, our customers."

"Stakeholder involvement will be particularly critical in the program development phase," said Singer, "as we address issues such as potential service offerings, customer eligibility, supplier qualifications, performance measurements, and pilot program duration."

According to Singer, the development phase of the pilot program is planned to be completed by next spring, with program implementation expected to begin well before the 1996 heating season.

Settlement Supports Bay State's Strategic Vision 2000

"We see this pilot program as consistent with our recently announced Strategic Vision 2000," said Singer, "wherein we are restructuring our company into three distinct, but related businesses -- Local Transportation, Energy Products & Services, and Energy Ventures. We see residential unbundling as bringing competition and choice to our residential customers. This should lead to lower prices and better service for our customers, and should result in increased gas utilization on our system. We also see residential unbundling as enabling us to expand our opportunities for marketing energy-related products and services through our Energy Products & Services business segment."

Bay State To Offer Transportation Service Enhancements To Commercial-Industrial Customers

Certain other components of the company's proposed rate redesign should make transportation service from Bay State more attractive to a much larger group of commercial-industrial customers. Currently, only about 100 of Bay State's largest customers purchase unbundled transportation service. Specific enhancements include:

1. Bay State will offer a supplemental gas supply service during the winter period to meet the seasonal demands of commercial and industrial heating customers. "The availability of supplemental service from Bay State will for the first time make it possible for customers with fluctuating usage patterns to purchase their `base load' supplies from unregulated marketers, while relying on Bay State only for the uncertain heating portion of their energy needs," Singer said.

2. "In addition, Bay State will offer an attractively priced `needle peaking' service to help commercial-industrial customers guard against supply shortfalls during the coldest days when gas marketers may be unable to guarantee gas deliveries," he continued.

Bay State's Rate Redesign Should Not Significantly Impact The Majority Of Residential Customers

The approved settlement also will enable Bay State to introduce new rates that more closely reflect the actual costs associated with serving different customer classes. New rates would become effective on January 1, 1996 and will not result in significant gas bill increases for the majority of the company's 246,000 Massachusetts natural gas customers.

The impact on residential heating customers will range from a decrease of $2 per month (3%) for a customer using 850 therms per year to an increase of $2 per month (2%) for a customer using 1,510 therms per year. Lower gas supply costs taken separately, however, will result in a lower cost per therm for these customers, compared to last year. Specifically, gas supply cost reductions will lower customer bills by about $4 per month (7%) and $8 per month (8%), respectively.

The impact of the rate redesign on residential nonheating customers will range from an increase of $0.50 per month (4%) for a customer using 64 therms per year to an increase of $1 per month (4%) for a customer using 288 therms per year. Separately, lower gas supply costs will reduce residential nonheating customers' bills by less than $1 per month (between 2% and 5%).

Company Overview

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 287,000 customers in Massachusetts, New Hampshire, and Maine. The company's Energy Products & Services segment offers energy commodities (such as natural gas, propane, etc.) and a variety of related equipment and services. In addition, the company invests in Energy Ventures, which today include MASSPOWER, the Portland Natural Gas Transmission System (PNGTS), KBC Energy Services, and Wells LNG.

CONTACR: Bay State Gas Company, Westborough

Dave Reichman, [phone]