BACKGROUND:
We are buying a house with the following existing utilities:
1 - OIL (Inground Tank) for Heat and Hot Water;
2 - ELECTRICITY for the Range, Oven, and Dryer
There is NO GAS in the house, but the gas lines are in the street.
We are considering CONVERTING TO GAS for Heat, Hot Water, Oven and Dryer.

QUESTION:
WHAT IS THE BEST ECONOMIC AND ENVIRONMENTALLY FRIENDLY UTILITY
COMBINATION FOR A HOME IN MORRISTOWN, NEW JERSEY - OIL FOR HEAT & HOT
WATER WITH ELECTRIC FOR RANGE, OVEN AND DRYER? or GAS FOR HEAT, HOT
WATER, RANGE, OVEN AND DRYER?

Well, you can calculate exactly what your odds are going to be using
this site for morristown New Jersey. Your Utility company will be
PSE&G btw. You can get all the details from these sites exactly based
on your estimated use etc.  Oil is somerthi

electrical Rate Comparison
http://www.locationnj.com/Electric_Rate_Comp.asp
Gas Rate Comparison 
http://www.locationnj.com/Gas_Rate_comp.asp
Overall Energy Rates
http://www.locationnj.com/Energy_Rates.asp

Also here it shows that if you have a solar load or wind of 2 MW or
less based on your annual maximum kW demand, you may be eligible to
send excess KWhrs back to PSE&G for a credit.

Its titled Help the environment and save money with renewable energy. 
Its on the PSE&G 

http://www.locationnj.com/External_link.asp?url=http://www.pseg.com/companies/pseandg/schedules/tariffs.jsp

1-800-436-PSEG (7734) and online address pseg.com. Call anytime for
answers about service, billing or to report an unsafe condition.

I'm surprised your realtor would let you buy a house with an
underground oil tank. In NJ it is a huge environmental issue. Have the
seller remove it and have the necessary inspection from your local
fire dept. If. That thing ever leaks you will pay more for the
clean-up than you paid for your house.

I'm surprised your realtor would let you buy a house with an
underground oil tank. In NJ it is a huge environmental issue. Have the
seller remove it and have the necessary inspection from your local
fire dept. If. That thing ever leaks you will pay more for the
clean-up than you paid for your house.
   Have the gas connected and buy the most energy efficient furnace
you can afford. It will pay for itself in five years. Gas is more
environmentally friendly than electric and heats things up much
faster.
   My real estate attorney refused to let us buy our house (in NJ)
until the oil tank issue was resolved.

Do you already have central air conditioning? Is your existing oil
baseboard hot water or hot air?

Many people overlook heat pumps because of their historically bad rep.
However, heat pumps are extremely efficient and can provide your
heating/cooling for most of the year. Just make sure you work with a
high qualified HVAC contractor.

In addition, if your budget allows, look into geothermal heat pumps,
also called "geoexchange" systems. These are heat pumps that draw
heat/cooling power from the ground rather than the air. However, for
most people, a conventional heat pump will yield the most economical
solution. However, they are very expensive unless you have an ample
supply of well water.

If you do already have oil baseboard heat, you wouldn't have to change
anything there. Just install the heat pump WITHOUT electric heat
strips and use it as your sole source of heating/cooling whenever the
temperature is above ~28F. Once the temperature drops well below
freezing, let the heat pump run continuously and use the oil burner to
supply supplemental heat. Even into the teens, the heat pump will work
efficiently, though it won't be able to put out very much heat, which
is why you then use the oil burner just to keep up with the extreme
heating demands.

I live not far from you in Pennsylvania and there were only 24 days
this winter where the average temperature dropped below freezing and
forced me to use the oil heat in this manner. The rest of the time,
the heat pump worked fine to keep my home comfortable.

The added benefit of moving to a heat pump (in PA at least) is that
the utility company will give you a greatly discounted electric rate.
Because of this disciount, my electric bills dropped considerably even
after adding in the consumption from the heat pump! So, not only did I
use much less oil, I paid less to the electric company.

Finally, check the insulation in the house. The attic space should be
insulated to at least R30-R40 (10"-13" of fiberglass). Even better is
spray foam. Professional installation of a few inches (~R20) of spray
foam in your walls and ceiling will stop air leaks, sealing your house
and making it much more efficient than even a claimed R30 fiberglass
insulation job (because fiberglass doesn't stop air infiltration).

The windows should be TIGHT and have no noticable air leaks. Bad
windows can lead to 30+% increases in your home energy use. If nothing
else, seal them during the winter using the plastic window treatments
that you can buy at Home Depot. This can make a huge difference to
your comfort and energy consumption. To put it in perspective, a
typical old window will lose 10x the energy of your walls.

If you want to get really aggressive in your insulation for windows,
cover them with window quilts at night.

Also, New Jersey is EXTREMELY aggressive with it's solar electric
rebates. It would be a no-brainer for me if I lived there. If you have
the financial means and the house gets plenty of sun, then a big batch
of solar electric panels can greatly reduce your overall consumption.
A solar hot water heater is also a possibility and is one of the least
expensive ways to reduce the load on your water heater.

first off underground oil tanks are not the problem you are making
them out to be, Less than 1/10th of 1 percent will ever develop a
leak. However if you want to remove it check with local authorities
some locations will allow you to fill it with sand and abandon the
tank. Oil to heat your home and hot water even with the higher prices
currently is your best option for a warm, clean, and efficient heat.
Oil burns at 138,000 BTU per gallon, gas at 90,000 and electric
produces 1 BTU per 3.43 kw. So it will take gas and electric longer to
heat your home and hot water, than oil and this means it will come on
more frequently and cost you more than oil. So clearly you have only
one choice. Which oil company will provide you with the best value for
your money. adding a heat pump if it is a hot air system would also be
a wise decision with a fosil fuel kit for anything under 38 degrees
farenhiet. And don't fortget to add humidification. Dry air robs your
body of moisture and will make you feel cooler then you actually are.

I'm very interested about this "geoexchange" system. 
Does it also provide cold air during the summer?
What is the approx. cost of installing it?
My house has an old oil heat system and no central A/C, so now I'm
searching the best way to upgrade this.
Thank you in advance.

Your choice of a heating system depends on the cost of each fuel
source, and the cost of the heating equipment you end up purchasing. 
I live in Canada so I deal in metric (Megajoules and cubic meters).

Natural gas has an energy content of roughly 37.7MJ/m3 and #2 oil has
an energy content of roughly 39.5GJ/m3 (Gigajoules).  Here in Toronto,
Ontario natural gas costs about $0.40/m3, oil costs about $0.80/L (1m3
= 1 Litre), and electricity costs about $0.10/kWh (1kWh = 3.6MJ).

Thus, relating everything back to energy,
natural gas costs $10.61/GJ
oil costs $20.25/GJ
electricity costs $27.77/GJ

On the surface, it would seem that natural gas is the cheapest per
unit of energy.  Ultimately, all your home heating loads can be
translated back into energy.  But, we have to look at equipment
efficiency to determine which is your best heating source.

You can buy gas condensing furnaces now for 90% efficiency or more. 
There are oil furnaces with high efficiency but less choice on the
market.  Condensing  means the water vapour in the flue gas exhaust is
condensed before being discharged outside.  Some of the newer furnaces
use variable speed blowers and modulating burners from lower electric
and fuel consumption during mild weather.  So if you buy a 90%
efficient furnace, then 90% of the energy in the input fuel is being
transfered to your home as heat.  The other 10% goes out the flue
vent.

Most conventional heat pumps are electrically driven, and may or may
not be used for cooling in the summer.  Heat pumps when used as
heating in the winter have an efficiency or COP (coefficient of
performance) between 3 and 3.5.  This means for every 1kWh of
electrical energy input, you get 3 to 3.5kWh (10.8 to 12.6MJ) of
heating.  The drawback is that the performance of heat pump drops off
below freezing temperatures, necessitating heating backup.

So, to put it all into perspective, if we compared a 90% efficiency
gas or oil furnace and a 3.5COP heat pump, the relative cost to heat a
home with an assumed annual heating load of 100GJ is:
natural gas $10.61/GJ x 100GJ / 90% = $1178 per year
oil $20.25/GJ x 100GJ / 90% = $2250 per year
electric heat pump $27.77/GJ x 100GJ / 3.5 = $793 per year

The electric heat pump comes out as the winner from an operating cost
standpoint, only if winter temperatures are above freezing most of the
time.
But the cost of a new condensing furnace might be $2000 to $3000
whereas a heat pump with equivalent heating capacity might be $4000 to
$5000.

In the end, you have to do a life cycle analysis of your present
system and your proposed system to decide which one is right for you. 
Bear in mind, that natural gas combustion results in lower air
emissions than oil, and lower than electricity if the electricity is
generated from coal.