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The Late Great Gas Utility

By abandoning R&D and marketing, the gas industry may have sealed its own fate.

Fortnightly Magazine - April 2008

oil imports, urban air pollution, greenhouse gases, energy inefficiency and cost. It is in the country’s interest to use an increasing amount of natural gas for thermal applications in the residential, commercial, industrial, and transportation markets. Right now, the industry is moving in the wrong direction. If all segments of the gas industry—including its regulators—work together, it can quickly change to the right direction.



1. Arguably this isn’t true because of inadequacy of natural gas supply. But the truth is the United States has a huge natural gas resource base that is more than adequate to support growing demand for natural gas in high priority applications.

2. To this list can be added the natural gas vehicle market, which percentage-wise is growing very rapidly, albeit from a small base.

3. A handful of natural gas utilities around the country—Southern California Gas, PG&E, National Grid, Questar and Laclede—continue marketing natural gas aggressively, with the result that their gas load has increased considerably.

4. The cable TV model provides an example. Regulators allow cable companies to charge customers a certain amount per year, and they bill customers 1/12th of that amount each month. They are economically indifferent to how much television customers watch. Decoupled gas rates would work basically the same. All the gas utilities’ annual costs for providing service to customers (including profit) would be billed to customers in 12 monthly installments. Any natural gas that customers use in a month would be added to their bill at the cost the gas utility pays for it ( i.e., no mark-up). Like the cable company, this makes gas utilities indifferent to how much gas each customer uses. Among the benefits attributed to decoupling is that, since gas utilities no longer would benefit from increased gas use, they would be more inclined to promote conservation.

5. “Full-cycle” refers to all the energy used for an application – from production through transmission through distribution through end-use. So, for example, at the point-of-use, electric water heaters are more efficient than gas water heaters. But because much more energy is used in making and moving the electricity to the customer, on a full-cycle basis, natural gas is far more energy efficient. For purposes of public policy, all energy comparisons should be made using a full-cycle analysis.

6. This trend can be expected to worsen. Gas utilities serving colder climates have always been confident that new home builders will install gas furnaces and also gas water heating. That confidence now seems to be misplaced. Frost-belt builders of entry-level homes have discovered that they can save money by installing a high efficiency condensing gas furnace along with an electric water heater, eliminating the need for an expensive chimney. As a result, gas utilities are losing the water heater load (a year-round base load), and the heating load is substantially reduced because of the more efficient furnace.