DEREGULATION
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THE DEREGULATION OF THE NATURAL GAS INDUSTRY AND OTHER UTILITIES

   In the mid 1980's the Federal Government deregulated the Natural Gas Industry in a similar manner to the deregulation of the telephone industry twenty years prior.

   Subsequently, many independent companies started marketing and transporting natural gas. At the onset, many end-users were skeptical. As time went on, many large and small end-users subscribed to a transportation gas program. 

   With such a program, the Supplier delivers gas to the local distributing company (LDC), who in turn delivers the gas to the end-user with charges for the meter and deliveries only. Many end-users saved 20-30% on the cost of natural gas and in many cases were able to eliminate the payment of tax on their purchase.

   In the late 1980's the local public utility commission granted some LDC’s the right to charge special tariffs to end-users who subscribe to gas transportation. Thereafter, some small end-users had to withdraw from the program because the new tariffs made the program less beneficial economically for end-users with low annual gas consumption.

   As new tariffs went into effect, end-users had to choose which program would be appropriate for them: full backup or zero to variable backup, which saved more money but had the risk of penalty for non-delivery or under-delivery of gas during winter periods. 

   End-users also had the choice of additional storage offered by the LDC’s which, when used wisely, could save more money. Also, grouping meters with the same LDC saved on administrative tariffs charged by the LDC, and it reduced the risk of a penalty by allowing all meters to draw from one pool of deliveries.

   In the mid 1990's certain LDC’s programs began requiring the end-user to provide a phone jack near the meter. The gas company then installed a remote reading device to report the gas usage on a daily basis. 

 

   This device was required for end-users who elected to be on zero or variable backup. It cost an additional fee to the end-user, and it also required the supplier to provide daily uninterrupted deliveries. Therefore, it is advisable to check if multiple gas meters could be merged. 

   It also posed an additional risk that if the supplier did not ship all the necessary gas daily, the LDC would charge a daily penalty for any shortage in deliveries plus a higher cost for the gas. 

   The LDC’s also provided pooling programs where suppliers stored all the gas in one large storage account. This saved the customer administrative charges by the LDC and minimized the potential of buying system supply during the winter which might cost the consumer substantial penalties under zero or partial backup.

   Thereafter, the Federal Energy Regulatory Commission (FERC) completely deregulated the interstate gas pipeline industry (also known as FERC Order 636). This allowed gas utility companies to renegotiate their long term contracts and reduce the cost to reflect current market conditions.

   Again, after the mid 1990's, additional tariffs went into effect which reduced the amount of storage permitted by the LDC to the end-users. Pools were set up and bulletin boards were provided to end-users for a fee. 

   Many end-users had to look for other options for additional storage such as pipeline storage and/or gas futures in order to assure a reasonable price for transportation of gas.

   Let us now address the “cost” and related cost aspect of gas transportation. There are various ways suppliers charge end-users for gas: index plus, futures plus, nymex plus, hedging and fixed price for twelve months or ten years, management fees, a percentage of savings, or a combination of the above.

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