Who Regulates Natural Gas and the Effects of Regulation on Prices

Each state has a public utility commission that regulates natural gas utilities. Surprising as it may seem the natural gas utilities aren’t allowed to make any money from the natural gas itself. A natural gas or electric utility bill typically has three main charges: natural gas or electricity used, service fee and delivery charges. The service fee and delivery charges are based on the amount of natural gas or electricity used.

The state utility commissions not only oversee the rates utilities charge but issues related to construction and maintenance of adequate supplies for customers. There are three federal agencies that regulate the natural gas industry as well. They are the Federal Energy Regulatory Commission (FERC), the Securities Exhange Commission (SEC) and the Commodity Futures Trading Commission. These agencies are the federal overseers of the industry that help ensure that the natural gas markets are not being manipulated.

The fluctuations in the price of natural gas are more related to supply and demand issues than to the individual utility companies increasing their profits. When natural gas prices increase, most people become more frugal in their usage. The natural gas utility actually makes less in this instance because they only make profits on the service fees and delivery charges. When consumers use less natural gas the utility is forced make less in service fees and delivery charges which are based on the volume used.

Many state public utility commissions are exploring the decoupling of rates from amounts used for utilities. Today, with the rates charged tied to the amount used the utility companies have less incentive to be concerned about energy efficiency. Alternative approaches are being discussed to more closely align utility revenue with energy efficiency.

The actual price of natural gas is mainly influenced by supply and demand as in most free markets. Today, in the United States, demand is growing in the industrial, commercial and residential sectors. It is a very efficient fuel source that is much friendlier to the environment than oil.

The U.S. Energy Information Administration (EIA) issues winter price forecasts once a month during the winter. These estimates are based on a couple factors. First, an estimate of what the average price over the winter will be. Next, a prediction of the weather is made. How cold is it expected to be this winter? Will it be colder or warmer than last year? A percentage increase or decrease is derived from this.