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1.2.1.1 Delivery of Natural Gas to the Consumer

As a source of domestic energy that pre-dates electricity, natural gas has historically been viewed as an economically significant commodity that, in view of the public welfare, has required some form of public control. Today, it is an undeniable fixture on the American energy landscape: natural gas is transported to every area of the country and accounts for about 29% of the country’s total energy consumption. In all, 1500 local gas distribution companies collectively serve almost 70 million residential customers.

When consumers adjust the thermostat to help heat their home, they are performing the final act in a continuous chain of economic transactions. The gas service they enjoy typically has been transported over hundreds and even thousands of miles from its point of origin. First, the gas is gathered in the field; then it is sold and transported by pipelines to the consumer markets. Finally, the local distribution companies who receive the gas from the pipelines make it available to the public.

Natural gas producers look for and harvest the resource and subsequently sell it to their pipeline customers. In large measure, they are not regulated as public utilities and are generally free to charge whatever prices they feel the market will bear.

At least until 1992, the interstate pipelines that purchase gas from producers had been both the most significant entities within the natural gas industry and the most heavily regulated. Those companies whose transmission contracts cross state lines are subject to federal regulation. Pipelines that operate exclusively intrastate must answer to state authorities (with some exceptions).

Until 1992, pipelines acted in a dual capacity as both sellers and the exclusive transporters of gas. Therefore, until 1992, if a local gas distribution utility (LDC) wished to buy gas so that it could supply its residential and business customers, it had no choice but to purchase the gas from a pipeline. Only pipelines had the means and facilities to buy gas from producers and, once they did so, they would not transport gas for anyone who did not buy the gas from them. Several recent developments in natural gas regulatory policy, discussed in § 1.2.1.3, infra, have permanently changed this dynamic, and as a result, new challenges have arisen for residential customers.

Natural gas is received from pipelines by LDCs that then resell it within their service territories. Because the vast majority of the 1500 LDCs operate within state boundaries, they are overseen by state utility commissions. Residential consumers of natural gas do business with the LDCs.