How does natural gas pricing work?

The price of natural gas delivered to your business can be divided into three primary components:

Commodity Cost

The commodity cost refers to the cost of the gas supply produced from a gas well. As is true of other commodities, natural gas pricing is dependent on various market forces and fluctuates frequently.

Interstate Pipeline Transportation Charges

Interstate transmission pipelines, regulated by the Federal Energy Regulatory Commission (FERC), charge a fee for the transportation and delivery of natural gas supplies from the gas production areas to the market area.

Local Gas Utility Delivery Charges

The interstate pipelines transport gas directly to some large volume consumers. Most consumers, however, have gas delivered to their locations by a local gas utility company. The utilities charge a fee for this local transportation service. Usually the charge is billed in two parts: a fixed monthly Customer Charge, and a variable charge based on the quantity of gas actually transported to a customer. The variable charge may be referred to as a Delivery Charge, Energy Charge, Non-Fuel Charge or Transportation Charge depending on the utility.

Some gas utilities continue to provide retail gas commodity sales to customers. For commercial customers required or opting to purchase their gas supply from the utility, their monthly bill statement would include a charge for local gas transportation, as well as a separate charge for the cost of gas. The utility’s cost of gas is a combination of the gas commodity cost and the interstate transmission pipeline transportation costs described above.

Gas Marketer Charges

Customers electing to purchase gas supply from a gas marketer will receive a monthly bill statement from the marketer, instead of the gas utility, for commodity and interstate transmission pipeline transportation costs. The gas utility will continue to bill the customer for the local transportation of gas to the customer’s business location.

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